[Federal Register: May 4, 1995 (Volume 60, Number 86)]

[Rules and Regulations ]               

[Page 22155-22223]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr04my95-17]

[[Page 22155]]

_______________________________________________________________________

Part III

Department of the Treasury

Office of the Comptroller of the Currency

12 CFR Part 25

Federal Reserve System

12 CFR Part 228

Federal Deposit Insurance Corporation

12 CFR Part 345

Department of the Treasury

Office of Thrift Supervision

12 CFR Part 563e

Federal Reserve System

12 CFR Part 203

_______________________________________________________________________

Community Reinvestment Act Regulations and Home Mortgage Disclosure; 

Final Rules

[[Page 22156]] 

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 25

[Docket No. 95-07]

RIN 1557-AB32

FEDERAL RESERVE SYSTEM

12 CFR Part 228

[Regulation BB; Docket No. R-0822]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 345

RIN 3064-AB27

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 563e

[Docket No. 95-72]

RIN 1550-AA69

FEDERAL RESERVE SYSTEM

12 CFR Part 203

 

Community Reinvestment Act Regulations

AGENCIES: Office of the Comptroller of the Currency, Treasury (OCC); 

Board of Governors of the Federal Reserve System (Board); Federal 

Deposit Insurance Corporation (FDIC); Office of Thrift Supervision, 

Treasury (OTS).

ACTION: Joint final rule.

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SUMMARY: The OCC, Board, FDIC, and OTS, (collectively, the Federal 

financial supervisory agencies or agencies) are amending their 

regulations concerning the Community Reinvestment Act (CRA). The 

agencies published a joint notice of proposed rulemaking on this issue 

on December 21, 1993 (1993 proposal) and again on October 7, 1994 (1994 

proposal). This final rule reflects comments received on both proposals 

and the agencies' further internal considerations.

    The purpose of the CRA regulations is to establish the framework 

and criteria by which the agencies assess an institution's record of 

helping to meet the credit needs of its community, including low- and 

moderate-income neighborhoods, consistent with safe and sound 

operations, and to provide that the agencies' assessment shall be taken 

into account in reviewing certain applications.

    The final rule seeks to emphasize performance rather than process, 

to promote consistency in evaluations, and to eliminate unnecessary 

burden. As compared to the 1993 and 1994 proposals, the final rule 

reduces recordkeeping and reporting requirements and makes other 

modifications and clarifications.

EFFECTIVE DATES: This joint rule is effective July 1, 1995, except 12 

CFR 25.3 through 25.7 and 25.51, 12 CFR 228.3 through 228.7 and 228.51, 

12 CFR 345.3 through 345.7 and 345.51, and 12 CFR 563e.3 through 563e.7 

and 563e.51 are removed effective July 1, 1997.

FOR FURTHER INFORMATION CONTACT:

    OCC: Stephen M. Cross, Deputy Comptroller for Compliance, (202) 

874-5216; or Matthew Roberts, Director, Community and Consumer Law 

Division, (202) 874-5750, Office of the Comptroller of the Currency, 

250 E Street, SW., Washington, DC 20219.

    Board: Glenn E. Loney, Associate Director, Division of Consumer and 

Community Affairs, (202) 452-3585; Robert deV. Frierson, Assistant 

General Counsel, Legal Division, (202) 452-3711; or Leonard N. Chanin, 

Managing Counsel, Division of Consumer and Community Affairs, (202) 

452-3667, Board of Governors of the Federal Reserve System, 20th Street 

and Constitution Avenue, NW., Washington, DC 20551.

    FDIC: Bobbie Jean Norris, Chief, Fair Lending Section, Division of 

Compliance and Consumer Affairs, (202) 942-3090; Robert W. Mooney, Fair 

Lending Specialist, Division of Compliance and Consumer Affairs, (202) 

942-3092; or Ann Hume Loikow, Counsel, Regulation and Legislation 

Section, Legal Division, (202) 898-3796, Federal Deposit Insurance 

Corporation, 550 17th Street, NW., Washington, DC 20429.

    OTS: Timothy R. Burniston, Assistant Director for Compliance 

Policy, (202) 906-5629; Theresa A. Stark, Program Analyst, Compliance 

Policy, (202) 906-7054; or Lewis A. Segall, Senior Attorney, 

Regulations and Legislation Division, Chief Counsel's Office, (202) 

906-6648, Office of Thrift Supervision, 1700 G Street, NW., Washington, 

DC 20552.

SUPPLEMENTARY INFORMATION:

Introduction

    The Federal financial supervisory agencies jointly are amending 

their regulations implementing the CRA (12 U.S.C. 2901 et seq.). The 

amended regulations will, when fully effective, replace the existing 

regulations in their entirety.

    The CRA is designed to encourage regulated financial institutions 

to help meet the credit needs of their entire communities, including 

low- and moderate-income neighborhoods, consistent with safe and sound 

operations. Despite the CRA's notable successes in improving access to 

credit, banks and savings and loan institutions, as well as community 

and consumer groups, maintain that its full potential has not been 

realized, in large part because regulatory compliance efforts have 

focused on process rather than performance.

    In accordance with a request from the President, the Federal 

financial supervisory agencies have undertaken a comprehensive effort 

to reform their standards for evaluating compliance with CRA 

requirements. The final rule implements this reform effort by 

substituting a new system that evaluates institutions based on their 

actual performance in helping to meet their communities' credit needs.

Background

    In 1977, the Congress enacted the CRA to encourage banks and 

thrifts to help meet the credit needs of their entire communities, 

including low- and moderate-income neighborhoods, consistent with safe 

and sound lending practices. In the CRA, the Congress found that:

    ``(1) regulated financial institutions are required by law to 

demonstrate that their deposit facilities serve the convenience and 

needs of the communities in which they are chartered to do business;

    (2) the convenience and needs of communities include the need for 

credit as well as deposit services; and

    (3) regulated financial institutions have continuing and 

affirmative obligation[s] to help meet the credit needs of the local 

communities in which they are chartered.''

(12 U.S.C. 2901(a))

    The CRA has come to play an increasingly important role in 

improving access to credit in communities--both rural and urban--across 

the country. Under the impetus of the CRA, many banks and thrifts 

opened new branches, provided expanded services, and made substantial 

commitments to increase lending to all segments of society.

    Despite these successes, the CRA examination system has been 

criticized. Financial institutions have indicated that policy guidance 

from the agencies on the CRA is unclear and that examination standards 

are applied inconsistently. Financial institutions [[Page 22157]] have 

also stated that the CRA examination process encourages them to 

generate excessive paperwork at the expense of providing loans, 

services, and investments to their communities.

    Community, consumer, and other groups have agreed with the industry 

that there are inconsistencies in CRA evaluations and that current 

examinations overemphasize process and underemphasize performance. 

Community and consumer groups also have criticized the agencies for 

failing aggressively to penalize banks and thrifts for poor 

performance.

    Noting that the CRA examination process could be improved, 

President Clinton requested in July 1993 that the Federal financial 

supervisory agencies reform the CRA regulatory system. The President 

asked the agencies to consult with the banking and thrift industries, 

Congressional leaders, and leaders of community-based organizations 

across the country to develop new CRA regulations and examination 

procedures that ``replace paperwork and uncertainty with greater 

performance, clarity, and objectivity.''

    Specifically, the President asked the agencies to refocus the CRA 

examination system on more objective, performance-based assessment 

standards that minimize compliance burden while stimulating improved 

performance. He also asked the agencies to develop a well-trained corps 

of examiners who would specialize in CRA examinations. The President 

requested that the agencies promote consistency and even-handedness, 

improve CRA performance evaluations, and institute more effective 

sanctions against institutions with consistently poor performance.

    To implement the President's initiative, the four agencies held a 

series of seven public hearings across the country in 1993. At those 

hearings, the agencies heard from over 250 witnesses. Nearly 50 others 

submitted written statements. The preamble to the 1993 proposal 

reviewed the results of those hearings.

The 1993 Proposal

    The agencies published proposed revisions to their CRA regulations 

on December 21, 1993. The 1993 proposal (58 FR 67466) would have 

eliminated the twelve assessment factors in the present CRA regulations 

and substituted a more performance-based evaluation system. Under the 

1993 proposal, the agencies would have evaluated institutions based on 

their actual lending, service, and investment performance rather than 

on how well they conducted their needs assessments, documented their 

community outreach, and implemented other procedural requirements of 

the existing regulations.

    Generally, large retail institutions would have been evaluated 

based on some combination of lending, service, and investment tests. 

Institutions would have been required to report data on the basis of 

the geographic distribution of applications, denials, originations, and 

purchases of loans. Small banks and thrifts could have elected to be 

evaluated under a streamlined method that would not have required them 

to report this data. Every institution also could have elected to have 

its performance evaluated on the basis of a pre-approved strategic 

plan.

    All banks and thrifts would have been assigned one of four 

statutorily mandated CRA ratings (12 U.S.C. 2906(b)(2)). However, five 

ratings would have been used for the lending, service, and investment 

tests, with the satisfactory category split into low satisfactory and 

high satisfactory.

    Collectively, the agencies received over 6,700 comment letters on 

the 1993 proposal. As a general matter, the vast majority of commenters 

expressed support for the agencies' goal of developing more objective, 

performance-based assessment standards that minimize burden while 

stimulating improved performance. However, many expressed concern over 

aspects of the 1993 proposal that they viewed as allocating credit to 

particular kinds of borrowers. After considering the comments, the 

agencies published a second proposal on October 7, 1994, which 

responded to many of the suggestions in the comments on the 1993 

proposal, including concerns about credit allocation, while preserving 

the 1993 proposal's goal of emphasizing performance over process.

The 1994 Proposal

    The 1994 proposal (59 FR 51232) retained the principles and 

structure underlying the 1993 proposal but made significant changes to 

the details in order to respond to many of the specific concerns raised 

in the comment letters. As in the 1993 proposal, the 1994 proposal 

would have replaced the existing regulations' twelve assessment factors 

with a performance-based evaluation system. The 1994 proposal retained, 

but modified, the lending, investment, and service tests for large 

retail institutions; the streamlined evaluation for small institutions; 

an alternative evaluation for limited purpose and wholesale 

institutions; and the pre-approved strategic plan option available to 

all institutions.

    The 1993 proposal had been criticized because of certain objective 

criteria in the proposal (including market share, a presumptively 

reasonable loan to deposit ratio, loan mix, investment to capital 

ratios, and the number of branches readily accessible to low- and 

moderate-income geographies) which were intended to respond to concerns 

about the need for more objective standards for evaluating compliance 

with CRA requirements. Many commenters viewed these criteria as calling 

for credit allocation, although the agencies did not intend this 

result. The 1994 proposal removed these criteria from the regulatory 

language and substituted a broader range of qualitative and 

quantitative criteria. A system for evaluating compliance with CRA 

should not eliminate examiner judgment, even if completely objective 

criteria consistently applied were achievable. Preservation of examiner 

judgment to take into account the unique characteristics and needs of 

an institution's community and the institution's own capacity and 

relevant constraints are essential for a workable rule.

    At the same time, consistency in evaluations, reduction in the 

burden of compliance, and emphasis on performance are fully consistent 

with assuring a measure of examiner judgment. The 1994 proposal would 

have provided a balance between objective analysis and subjective 

judgment through a series of examiner decisions relying on detailed 

data measuring an institution's actual lending, service and investment 

performance. In order to minimize unnecessary subjectivity, the 

agencies provided guidance as to the standards that examiners would 

have applied in making the required judgments.

    Compared to the 1993 proposal, the 1994 proposal would have reduced 

data reporting burdens by streamlining reporting requirements. The one 

significant new reporting requirement was the collection and reporting 

of information on the race and gender of small business and farm 

borrowers. The agencies proposed this provision to respond to concerns 

that the 1993 proposal did not give enough weight to the fair lending 

aspect of an institution's CRA performance.

    In order to take into account community characteristics and needs, 

the 1994 proposal would have made explicit the context in which the 

tests and standards would have been applied to individual institutions. 

In a specific effort to reduce burden, the preamble indicated that the 

agencies, rather than institutions, would have collected and 

[[Page 22158]] developed the information needed to provide this 

``assessment context.''

    The 1994 proposal also modified the rating process from the 1993 

proposal. For large retail institutions, in calculating the assigned 

rating, the revised proposal would have given primacy to lending 

performance, but an institution's performance on the service and 

investment tests also would have been reflected in the assigned rating. 

The rating process for small institutions similarly would have given 

primacy to lending performance, and would have provided guidance on how 

the agencies would have considered service and investment performance. 

For all institutions, evidence of discriminatory or other illegal 

credit practices would have adversely affected the evaluation of an 

institution's performance. In addition, an appendix to the 1994 

proposal included rating profiles to guide the assessments.

    The 1994 proposal revised and clarified other important features of 

the 1993 proposal. It provided more detail as to how the proposed 

strategic plan option would operate in practice. Wholesale and limited 

purpose institutions were made subject to a community development test, 

which would have incorporated both community development lending and 

community development services in addition to qualified investments. 

Also, the agencies revised the definition of service area to include 

the local areas around an institution's deposit facilities in which it 

has significant lending activity and all other areas equally distant 

from such facilities.

Overview of Comments on the 1994 Proposal

    Collectively, the agencies received over 7,200 comment letters on 

the 1994 proposal. The agencies received comment letters from 

individuals, representatives of bank and thrift institutions, consumer 

and community groups, members of Congress, state, local, and tribal 

governments, and others, as shown in the following table.

                                           Table of Comments Received                                           

----------------------------------------------------------------------------------------------------------------

                                   Letters from                                                                 

                                  banks, thrifts   Letters from    Letters from                                 

             Agency                  and their     consumer and     government     Letters from        Total    

                                       trade         community       entities         others                    

                                   associations       groups                                                    

----------------------------------------------------------------------------------------------------------------

OCC.............................             669             839              39             672           2,219

Board...........................             607             832              12             482           1,933

FDIC............................           1,007             788              32             237           2,064

OTS.............................             261             623              24             173           1,081

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    The agencies reviewed and considered all of these comments in 

writing the final rule. The section-by-section analysis of the final 

rule discusses these comments in greater detail. As a general matter, 

the vast majority of commenters expressed support for the agencies' 

goal of developing more objective, performance-based assessment 

standards that minimize burden while stimulating improved performance. 

Many commenters believed that, under the existing CRA regulations, the 

agencies focus too closely on documentation of CRA performance and too 

little on actual performance. Some commenters felt the present 

documentation requirements are overly burdensome. Many commenters also 

supported the agencies' goal of ensuring consistency and evenhandedness 

among the agencies in CRA evaluations, without including specific 

criteria that might be viewed as allocating credit to specific 

borrowers. Commenters supported enhanced CRA examiner training to 

increase consistency. Although most commenters generally supported the 

agencies' goals in amending their CRA regulations, many expressed 

concern over certain aspects of the 1994 proposal.

The Final Rule

Review of Comments on the 1994 Proposal and Responses

    The final rule retains, to a significant extent, the principles and 

structure underlying the 1993 and 1994 proposals, but makes important 

changes to some details in order to respond to concerns raised in the 

comment letters and further agency consideration. The following 

discussion describes by topic the ways in which the agencies addressed 

commenters' concerns. The discussion also describes important technical 

modifications included in the final rule.

Enforcement Authority

    The agencies have removed two provisions found in both the 1993 and 

1994 proposals that engendered considerable comment. These provisions 

were the community reinvestment obligation, which stated that banks and 

thrifts have a specific affirmative obligation to help meet the credit 

needs of their communities, and the enforcement provision, which 

provided for penalties against banks and thrifts with ``substantial 

noncompliance'' ratings using the agencies' general enforcement powers 

under 12 U.S.C. 1818. Substantial comment was received both in favor 

of, and in opposition to, these provisions. Based on further analysis 

of their statutory authority, the agencies have removed these 

provisions.

    Consistent with the statute, the final rule provides that an 

institution's CRA rating reflects its record of helping to meet the 

credit needs of its entire community. The agencies will take into 

account an institution's record when evaluating various types of 

applications, such as applications for branches, office relocations, 

mergers, consolidations, and purchase and assumption transactions, and 

may deny or condition an application on the basis of the institution's 

record.

Scope

    The scope of the final rule does not differ appreciably from the 

scope of the current CRA regulations or the 1993 and 1994 proposals. 

The agencies historically have excluded from CRA coverage certain 

special purpose institutions, such as banker's banks, that are not 

organized to grant credit to the public in the ordinary course of 

business. These institutions continue to be treated as special purpose 

banks in the final rule and are excluded from coverage. Several 

commenters were concerned that the definition of banker's bank in the 

1994 proposal may not have conformed with that found in 12 U.S.C. 24 

(Seventh), as modified by the Interstate Banking Efficiency Act of 1994 

(IBEA). Therefore, the final rule references the definition of 

``banker's [[Page 22159]] bank'' found in 12 U.S.C. 24 (Seventh). The 

rule also specifies that institutions that provide only cash management 

controlled disbursement services are excluded from CRA coverage. In 

addition, the final rule provides for the CRA's applicability to 

foreign institutions consistent with the IBEA and prior agency 

interpretations.

Definitions

    Many of the definitions in the 1994 proposal remain the same in the 

final rule or have been adjusted only for purposes of clarity, with no 

change in substance. The agencies did, however, change some definitions 

substantively.

    Assessment area. The agencies replaced the term ``service area'' in 

the 1994 proposal with ``assessment area'' in the final rule for the 

reasons explained in the discussion of assessment area.

    ATM and branch. The agencies changed the definitions of ATM and 

branch to eliminate the requirement that an ATM or a branch be at a 

fixed site. This change means that staffed mobile offices that are 

licensed as branches will be considered ``branches'' under the final 

rule and that mobile ATMs will be considered ``ATMs.'' This change may 

affect the delineation of an institution's assessment area(s) because 

the assessment area(s) must include the geographies in which the 

institution has its main office, branches and deposit-taking ATMs. 

Including mobile branches and ATMs in defining an assessment area 

ensures that an institution that uses these means in an area not 

otherwise served by the institution will be evaluated on its success in 

helping to meet the credit needs of the area. Including mobile branches 

in the definition of ``branch'' will also affect evaluation of an 

institution's service to its community because the ``service test'' 

evaluates the distribution of an institution's branches and the 

institution's history of opening and closing branches. In the revised 

Part 345, the FDIC uses the term ``remote service facility'' instead of 

``ATM'' to conform with the terminology used in its regulations.

    Community development. The 1994 proposal did not provide a separate 

definition of ``community development,'' although the term was used in 

defining community development loans and services and qualified 

investments. Several commenters requested further guidance on the scope 

of activities that would qualify. Some commenters were concerned that, 

without further specification, the regulation might permit an overly 

broad range of activities to be considered favorably as supporting 

community development. Others were concerned that the definition might 

be too narrow.

    The final rule separately defines community development to mean: 

(1) Affordable housing (including multifamily rental housing) for low- 

or moderate-income individuals; (2) community services targeted to low- 

or moderate-income individuals; (3) activities that promote economic 

development by financing businesses or farms that meet the size 

eligibility standards of 13 CFR 121.802(a)(2) or have gross annual 

revenues of $1 million or less; or (4) activities that revitalize or 

stabilize low- or moderate-income geographies.

    The definition of community development restricts qualifying 

activities to those that promote community welfare, while recognizing 

that community welfare can be promoted in diverse ways. For example, a 

number of commenters, representing both the industry and community and 

consumer groups, stated that the requirement in the 1994 proposal that 

community development loans and services and qualified investments meet 

``community economic development needs'' inappropriately limited 

community development to efforts that meet ``economic'' needs. The 

final rule does not contain this limitation, and community development 

includes community- or tribal-based child care, educational, health, or 

social services targeted to low- or moderate-income persons or services 

that revitalize or stabilize low- or moderate-income geographies.

    In response to comments, the definition clarifies the small 

businesses and farms that the agencies intend to cover. The section of 

the definition that discusses activities that promote economic 

development by financing small businesses and farms refers to 13 CFR 

121.802(a)(2), the size limitations for the Small Business 

Administration's Small Business Investment Company and Development 

Company programs, as well as the $1 million gross annual revenues 

threshold used for lending test analysis.

    Several commenters stated that community development should require 

benefit to low- and moderate-income areas. However, narrowing the focus 

to only these areas would ignore some of the beneficial purposes of 

community development lending for low- and moderate-income individuals. 

Under the rule, community development includes activities outside of 

low- and moderate-income areas if the activities provide affordable 

housing for, or community services targeted to, low- or moderate-income 

individuals or if they promote economic development by financing small 

businesses and farms. Activities that create, retain, or improve jobs 

for low- or moderate-income persons to stabilize or revitalize low- or 

moderate-income areas also qualify as community development, even if 

the activities are not located in low- or moderate-income areas.

    The final rule also requires that, in order to be community 

development loans or services or qualified investments, activities must 

have community development as their primary purpose. Activities not 

designed for the express purpose of revitalizing or stabilizing low- or 

moderate-income areas, providing affordable housing for, or community 

services targeted to, low- or moderate-income persons, or promoting 

economic development by financing small businesses and farms are not 

eligible. The fact that an activity provides indirect or short-term 

benefits to low- or moderate-income persons does not make the activity 

community development. Thus, a loan for upper-income housing in a 

distressed area would not qualify simply on the basis of the indirect 

benefit to low- or moderate-income persons from construction jobs or 

the increase in the local tax base that supports enhanced services to 

low- and moderate-income area residents.

    The final rule removes the requirement in the 1994 proposal that 

community development loans and services and qualified investments 

primarily benefit low- or moderate-income persons or small businesses 

or farms. This requirement is unnecessary because the definitions of 

community development loan and service and qualified investment in the 

final rule require that community development be the primary purpose of 

the activities.

    Community development loan. The agencies have amended the 

definition of ``community development loan'' as described in the 

discussion of ``community development'' and in several other ways to 

respond to commenters' concerns.

    First, many commenters objected to the requirement in the 1994 

proposal that community development loans meet needs ``not being met by 

the private market.'' Some commenters pointed out that financial 

institutions are part of the private market so, if financial 

institutions make the loans, the needs addressed by the loans will, as 

a matter of course, be met by the private market. To respond to these 

comments, the agencies removed this [[Page 22160]] qualifier from the 

definition of a community development loan.

    Second, some commenters expressed confusion about the extent to 

which the definition of ``community development loan'' in the 1994 

proposal would have differed for wholesale and limited purpose 

institutions. The agencies amended the definition of ``community 

development loan'' in the final rule to clarify the two ways in which a 

``community development loan'' differs for wholesale and limited 

purpose institutions. First, wholesale and limited purpose institutions 

may consider loans as community development loans wherever they are 

located, if the institutions have otherwise adequately addressed the 

credit needs in their assessment area(s). This different treatment 

accounts for the fact that wholesale and limited purpose institutions 

typically draw their resources from, and serve areas well beyond, their 

immediate communities. Second, a wholesale or limited purpose 

institution may consider loans reported as home mortgage, small 

business, small farm or consumer loans to be community development 

loans. Institutions subject to the lending test may not consider loans 

reported in those categories to be community development loans, unless 

the loans are multifamily dwelling loans. This different treatment 

recognizes that the rule does not separately assess wholesale and 

limited purpose institutions on these reported loans.

    Some commenters also urged that the agencies permit wholesale and 

limited purpose institutions to include as a community development loan 

any loan that primarily benefits low- or moderate-income individuals 

regardless of the loan's effect on community development. The lending 

test evaluates an institution's performance in making home mortgage, 

small business, small farm, and consumer loans based on the geographic 

distribution of loans to borrowers of different incomes, not on the 

basis of the total number and dollar amount of loans to low- and 

moderate-income borrowers. Because the community development test does 

not consider borrower distribution, but only loan amount and volume, 

crediting any loan that benefits low- and moderate-income individuals 

could significantly inflate performance under this test. Therefore, the 

final rule does not incorporate the suggested change.

    Other commenters urged that institutions that are not wholesale or 

limited purpose institutions have the option of treating a home 

mortgage, small business, or small farm loan as a community development 

loan if it would otherwise qualify. The agencies have not done so. For 

retail institutions, the community development loan category permits 

consideration of loans that do not meet the definitions of home 

mortgage, small business or small farm loans but deserve favorable 

consideration in a CRA assessment. Loans that do meet the definitions 

of home mortgage, small business and small farm loans are more 

appropriately evaluated based on the criteria provided for these loans 

in the lending test.

    Some commenters requested that retail institutions receive 

favorable consideration for community development loans outside their 

assessment areas. Under the final rule, an institution that is not a 

wholesale or limited purpose institution may receive favorable 

consideration for a community development loan that benefits a broader 

statewide or regional area that includes the institution's assessment 

area(s). This approach maintains a balance between the broader purposes 

of community development lending and the focus of CRA on meeting the 

credit needs of an institution's local community. As previously noted, 

because of their different operational focus, wholesale and limited 

purpose institutions receive consideration for community development 

loans made outside this broader area if they have adequately addressed 

credit needs within the area.<SUP>1

    \1\Examples of community development loans include, but are not 

limited to, loans to: borrowers for affordable housing 

rehabilitation and construction, including construction and 

permanent financing of multifamily rental property serving low- and 

moderate-income persons; not-for-profit organizations serving 

primarily low- and moderate-income housing or other community 

development needs; borrowers in support of community facilities in 

low- and moderate-income areas or that are targeted to low- and 

moderate-income individuals; and financial intermediaries including, 

but not limited to, Community Development Financial Institutions 

(CDFIs), Community Development Corporations (CDCs), minority- and 

women-owned financial institutions, and low-income or community 

development credit unions that primarily lend or facilitate lending 

in low- and moderate-income areas or to low- and moderate-income 

individuals in order to promote community development. Other 

examples include loans to: local, state, and tribal governments for 

community development activities; and loans to finance environmental 

clean-up or redevelopment of an industrial site as part of an effort 

to revitalize the low- or moderate-income community in which the 

property is located.

    Community development service. The definition of ``community 

development service'' has been moved to the definition section of the 

rule for clarity. The definition has been conformed to the definitions 

of ``community development loan'' and ``qualified investment'' by 

removing the reference to ``needs not being met by the private market'' 

for the reasons described in the discussion of ``community development 

loan.'' In addition, community development services are required to be 

related to the provision of financial services. For example, service on 

the board of directors of an organization that promotes credit 

availability or affordable housing meets this requirement. Providing 

technical assistance in the financial services field to community-based 

groups, local, or tribal government agencies, or intermediaries that 

help to meet the credit needs of low- and moderate-income individuals 

or small businesses and farms is also related to the provision of 

financial services. By contrast, general participation by bank or 

thrift employees in community activities that do not take advantage of 

the employee's technical or financial expertise would not qualify. 

Although an admirable civic contribution, such employee participation 

is not sufficiently related to the provision of financial services to 

meet the purposes of CRA. As mentioned in the preamble to the 1994 

proposal, electronic benefits transfer and point-of-sale terminal 

systems that are designed to improve access, such as by decreasing 

costs, for low- or moderate-income individuals would receive favorable 

consideration.<SUP>2

    \2\Examples of community development services include, among 

other things: providing technical expertise for not-for-profit, 

tribal or government organizations serving low- and moderate-income 

housing needs or economic revitalization and development; lending 

executives to organizations facilitating affordable housing 

construction and rehabilitation or development of affordable 

housing; providing credit counseling, home buyers counseling, home 

maintenance counseling, and/or financial planning to promote 

community development and affordable housing; school savings 

programs; and other financial services the primary purpose of which 

is community development, such as low-cost or free government check 

cashing.

---------------------------------------------------------------------------

    Consumer loan. The definition of ``consumer loan'' remains 

substantially the same as in the 1994 proposal. As in the 1994 

proposal, a consumer loan must be extended to one or more individuals 

for household, family, or other personal expenditures. However, as 

proposed in 1994, the definition would have mirrored the definition of 

consumer loan in the Consolidated Report of Condition and Income (Call 

Report) or Thrift Financial Report (TFR) in an effort to reduce 

potential regulatory burden. The Call Report and TFR definitions 

exclude loans secured by real estate and loans used to purchase or 

carry securities. Many industry commenters objected to these 

exclusions. Commenters were particularly concerned that home equity 

loans that do not fall within the [[Page 22161]] definition of home 

improvement loans reportable under HMDA would not have been considered 

consumer loans under the proposed rule. The definition of consumer loan 

in the final rule no longer uses the definition in the Call Report or 

TFR. As a result, home equity loans that are not reportable under HMDA 

are consumer loans if they otherwise meet the definition. However, the 

agencies have clarified in the final rule that consumer loans do not 

include home mortgage, small business, or small farm loans. These loans 

are considered separately under the lending test so treating them also 

as consumer loans would result in double-counting.

    The final rule contains definitions for five categories of consumer 

loans: motor vehicle loans, credit card loans, home equity loans, other 

secured consumer loans, and other unsecured consumer loans. These 

definitions reflect the fact that the final rule permits an institution 

to elect evaluation of its consumer lending on a product-by-product 

basis.

    Home mortgage loan. In the 1994 proposal's definition of ``home 

mortgage loan,'' the agencies referred to the HMDA and its implementing 

regulations. Some commenters pointed out that the Board has refined the 

definition of home mortgage loan in its HMDA regulations (12 CFR Part 

203). These commenters indicated it would be preferable and, perhaps, 

less confusing if the agencies referred only to the Board's HMDA 

regulations, rather than to both the HMDA and the regulations. The 

agencies have amended the definition of ``home mortgage loan'' in the 

final rule accordingly. Under the final rule, a home mortgage loan 

means a ``home improvement loan'' or a ``home purchase loan'' as these 

terms are defined in 12 CFR Part 203. This definition includes 

multifamily dwelling loans and refinancings of home improvement and 

home purchase loans.

    Income level. The income level definitions under the 1994 proposal 

would have included adjustments to reflect high-cost areas and family 

size. A number of commenters suggested that, although these adjustments 

would make the income definitions more accurate, the value of the 

increased accuracy would be outweighed by the complication and burden 

associated with the use of adjusted figures. Other commenters pointed 

out that HMDA disclosure statements, which are used, in part, to 

evaluate CRA performance, do not employ the adjustments. Some 

commenters strongly supported the use of adjusted area median income, 

especially in high-cost communities. However, the flexibility of the 

performance standards allows examiners to account in their evaluations 

under the tests for conditions in high-cost communities, such as a 

shortage of credit for moderate-income persons or areas. In addition, 

the flexibility in the requirement that community development loans, 

community development services, and qualified investments have as their 

``primary'' purpose community development allows examiners to account 

for conditions in high-cost areas. Therefore, the definitions of income 

level in the final rule are based upon area median income without 

adjustments. In addition, the definition of ``area median income'' for 

rural areas has been simplified and uses only the statewide non-

metropolitan median rather than the higher of county median or the 

statewide figure.

    Limited purpose institution and wholesale institution. A number of 

industry commenters suggested that ``nonbank banks'' permitted under 

the Competitive Equality Banking Act (12 U.S.C. 1843(f)) (CEBA banks) 

should automatically be considered limited purpose institutions. These 

institutions operate under a variety of different business plans and 

legal constraints and include retail and wholesale banks, credit card 

banks, and industrial loan companies. CEBA banks may legally engage in 

different activities, depending on which activities a particular bank 

engaged in as of March 1, 1987. A uniform treatment of these 

institutions is therefore not practicable. The final rule provides the 

necessary flexibility to assess the CRA performance of these 

institutions and does not require any institution to engage in 

proscribed activities. Some of these institutions could be designated 

as wholesale or limited purpose institutions on a case-by-case basis. 

Further, the final rule permits the agencies to take into account any 

legal constraints placed on an institution in assessing performance. As 

in the case of thrifts, adjustments can be made in the ratings profiles 

to reflect the legal constraints imposed on the activities of CEBA 

banks.

    Other commenters requested more guidance on incidental lending 

activities that wholesale and limited purpose institutions could engage 

in without losing their special designation. Wholesale institutions may 

engage in some retail lending without losing their designation if this 

activity is incidental and done on an accommodation basis. Similarly, a 

limited purpose institution continues to meet the narrow product line 

requirement if it provides other types of loans on an infrequent basis.

    Qualified investment. The definition of ``qualified investment'' 

has been moved to the definition section for clarity and changed to 

reflect the new definition of ``community development'' and to respond 

to comments. The agencies have removed the requirement that a qualified 

investment must address community development needs ``not being met by 

the private market.'' Instead, in evaluating performance, the agencies 

will give greater weight to qualified investments that are not 

routinely provided by private investors.

    The 1994 proposal clearly permitted consideration of investments in 

organizations that make qualified investments, and the final rule is 

unmodified in this respect. Some commenters asked that qualified 

investments be required to benefit low- or moderate-income areas or 

required to benefit either low- or moderate-income people or areas. The 

agencies rejected these suggestions for the reasons noted in the 

discussion of ``community development.''

    The final rule clarifies specific aspects of qualified investments 

proposed in the 1994 proposal that raised issues in the comments. For 

example, the explicit reference to investments in credit unions has 

been removed to clarify that no special treatment for these 

institutions was intended under the investment test. Deposits and 

membership shares in any financial institution that otherwise meet the 

criteria discussed earlier for treatment as a qualified investment 

qualify under the investment test. In addition, although some comments 

suggested otherwise, Federal Home Loan Bank stock does not have a 

sufficient connection to community development to be considered a 

qualified investment.

    The use of the term ``standard'' mortgage backed securities in the 

preamble to the 1994 proposal was ambiguous and should be clarified to 

mean ``untargeted'' mortgage backed securities. Untargeted mortgage 

backed securities and untargeted municipal bonds are not qualified 

investments because their primary purpose is not community development. 

Investments in municipal bonds designed primarily to finance community 

development generally are qualified investments and need not be 

housing-related. Housing-related municipal bonds must primarily address 

affordable housing (including multifamily rental housing) needs in 

order to qualify.

    The term ``grants'' in the final rule includes in-kind 

contributions of property to community development organizations. 

Grants do not automatically have less weight than 

[[Page 22162]] investments, but the weight accorded a grant is 

determined under the performance criteria in the investment test.\3\

    \3\Examples of qualified investments include, but are not 

limited to, investments, grants, deposits or shares: in or to 

financial intermediaries (including, but not limited to CDFIs, CDCs, 

minority- and women-owned financial institutions, and low-income or 

community development credit unions) that primarily lend or 

facilitate lending in low- and moderate-income areas or to low- and 

moderate-income individuals in order to promote community 

development, such as a CDFI that promotes economic development on an 

Indian reservation; in support of organizations engaged in 

affordable housing rehabilitation and construction, including 

multifamily rental housing; in support of organizations promoting 

economic development by financing small businesses, including Small 

Business Investment Companies (SBICs) and specialized SBICs; to 

support or develop facilities that promote community development in 

low- and moderate-income areas for low- and moderate-income 

individuals, such as day care facilities; in projects eligible for 

low-income housing tax credits; in state and municipal obligations 

that specifically support affordable housing or other community 

development; to not-for-profit organizations serving low- and 

moderate-income housing or other community development needs, such 

as home-ownership counseling, home maintenance counseling, credit 

counseling, and other financial services education; and in or to 

organizations supporting activities essential to the capacity of 

low- and moderate-income individuals or geographies to utilize 

credit or to sustain economic development.

---------------------------------------------------------------------------

    Small institution. Under the 1994 proposal, institutions would have 

been considered small institutions if they had total assets of less 

than $250 million and were either independent institutions or 

affiliates of holding companies with less than $250 million in total 

assets. This definition of ``small institution'' received numerous 

comments. Industry commenters generally believed that the asset level 

for holding companies should be raised or eliminated entirely, although 

some indicated that the $250 million asset level for small institutions 

would be satisfactory. Some commenters representing institutions with 

assets below $250 million affiliated with a larger holding company 

indicated that their institutions typically operated independently from 

the holding company in complying with CRA obligations. They stated that 

it would be unfair for them to be evaluated under the assessment tests 

for a larger institution merely because of their ownership structure. 

On the other hand, community and consumer groups often commented that 

small institutions should not be treated differently, or that only 

institutions with fewer than $50 million in assets should be considered 

small institutions for purposes of the CRA rule.

    The final rule modifies the definition of ``small institution'' in 

light of these comments. In the final rule, for any independent 

institution to be considered a small institution, it must have total 

assets of less than $250 million. Moreover, an institution with total 

assets of less than $250 million that is owned by a holding company 

would be considered a small institution if the total bank and thrift 

assets of its holding company are less than $1 billion. The agencies 

were persuaded that some smaller holding companies may be unable to 

provide support to their subsidiary banks and thrifts for CRA 

compliance. Larger holding companies have the ability to provide 

support to their subsidiary banks and thrifts, so small institutions 

owned by these holding companies will not be unfairly burdened by 

evaluation under the lending, investment, and service tests used in the 

assessments of larger institutions. The choice of the $1 billion level 

reflects the weight of the comments that suggested raising the asset 

level and the agencies' judgment regarding the size at which a holding 

company should be expected to support the compliance activities of its 

bank and thrift subsidiaries. The agencies estimate that this change 

will add only a limited number of institutions, with average assets of 

about $100 million, to those eligible under the small bank performance 

standards.

    Many commenters also asked the agencies to clarify the date on 

which the determination will be made whether an institution is a small 

institution. The agencies have amended the definition of ``small 

institution'' to clarify that an institution will be considered a small 

institution throughout any calendar year if, as of December 31 of 

either of the prior two calendar years, the total assets of the 

institution (and, if applicable, its holding company) fell below the 

asset limits set out earlier for a small institution. This definition 

ensures some stability in whether an institution is classified as a 

small institution and minimizes the chance that an institution's status 

will change repeatedly from year to year. The definition also ensures 

that institutions that exceed the asset limits have adequate time to 

prepare to meet the requirements applicable to larger institutions.

    Small business loan and small farm loan. The agencies made no 

substantive changes to the definitions of ``small business loan'' and 

``small farm loan.'' The final rule cross-references the Call Reports 

and TFR definitions rather than restating the substance of the 

definitions as the 1994 proposal would have done. The definitions are 

based on the size of the loans. Some commenters urged that the 

definitions be based on the asset size of the business or the farm, as 

was originally proposed in 1993. The agencies have concluded that, 

although defining small business and small farm loans by the size of 

the loan may not be as precise as definitions based on business or farm 

asset size, following the approach used in the Call Report and TFR will 

appreciably reduce the burden of compliance for institutions and their 

borrowers. Also, the Call Report and TFR definitions minimize the need 

for institutions to collect additional information. The danger of 

inaccuracy is limited, because loan size roughly correlates with the 

size of a business or farm borrower. Furthermore, the agencies have 

retained the proposed requirement that institutions indicate whether a 

small business or small farm loan is to a business or farm with gross 

annual revenues of $1 million or less. This requirement will provide 

additional information to identify loans to small entities.

    Several commenters requested that the agencies clarify whether the 

definitions of small business and small farm loans include loans made 

to nonprofit organizations as described in the Internal Revenue Code at 

26 U.S.C. 501(c)(3). Loans made to nonprofit organizations are included 

to the same extent they are included under the Call Report and TFR 

definitions of small business and small farm loans. Loans to nonprofits 

that are reported as small business or small farm loans cannot also be 

reported as community development loans, except by wholesale and 

limited purpose institutions.

Performance Tests, Standards and Ratings in General

    Several changes have been made to the section of the 1994 proposal 

on assessment tests, standards, and ratings. As an initial matter, the 

terms ``performance tests,'' ``performance standards,'' and 

``performance criteria'' have been substituted for the terms 

``assessment tests,'' ``assessment standards,'' and ``assessment 

criteria'' to reflect more accurately the final rule's focus on 

performance rather than process. The agencies have also changed the 

term ``assessment context'' to ``performance context'' because the 

latter term better describes the role of this information in the CRA 

evaluation process.

    Performance context. An institution's performance under the tests 

and standards in the rule is judged in the context of information about 

the institution, its community, its competitors, and its peers. 

Examiners will consider the following information, as appropriate, in 

order to assist in [[Page 22163]] understanding the context in which 

the institution's performance should be evaluated: (1) The economic and 

demographic characteristics of the assessment area(s); (2) lending, 

investment, and service opportunities in the assessment area(s); (3) 

the institution's product offerings and business strategy; (4) the 

institution's capacity and constraints; (5) the prior performance of 

the institution and, in appropriate circumstances, the performance of 

similarly situated institutions; and (6) other relevant information. 

The final rule clarifies that a proposed strategic plan will also be 

evaluated in the same context. However, all of the factors described in 

the performance context would not necessarily apply to each strategic 

plan. In this regard, the performance of similarly situated lenders 

would not generally be appropriate for evaluating future goals under a 

strategic plan.

    Under the 1994 proposal, the assessment context would have included 

examiner-developed information on the credit needs of an institution's 

service area. Many commenters interpreted the proposal to mean that the 

agencies would prepare a detailed needs assessment for each 

institution's service area(s). Several bank and thrift commenters 

criticized such a role for the agencies, reasoning that institutions 

know their communities far better than a regulatory agency, and that 

agency-prepared assessments would lead to credit allocation. Some 

community organization commenters, while more supportive of the concept 

of agency prepared needs assessments, were concerned that the proposal 

might imply that institutions did not need to make an effort to know 

their communities' credit needs, but could instead look to the agencies 

for that determination.

    The agencies did not intend to suggest that an agency-developed 

needs assessment would prescribe the credit needs an institution must 

address. Instead, the examiner-developed information on credit needs 

was intended to help inform the examiner's judgment about the 

institution's record of performance. Institutions are in the better 

position to know their communities, and it is neither appropriate nor 

feasible for the agencies to prepare a detailed assessment of the 

credit needs of an institution's community. Thus, under the final rule 

the agencies will analyze the information an institution maintains on 

the credit needs of its community along with relevant information 

available from other sources. At the same time, the final rule does not 

establish a requirement that each institution prepare a ``needs 

assessment'' to be evaluated by the examiner as urged in some comments 

provided by financial institutions and community organizations.

    Under the final rule, the agencies will neither prepare a formal 

assessment of community credit needs nor evaluate an institution on its 

efforts to ascertain community credit needs. Instead, the agencies will 

request any information that the institution has developed on lending, 

investment, and service opportunities in its assessment area(s). The 

agencies will not expect more information than what the institution 

normally would develop to prepare a business plan or to identify 

potential markets and customers, including low- and moderate-income 

persons and geographies in its assessment area(s). This information 

from the institution will be considered along with information from 

community, government, civic and other sources to enable the examiner 

to gain a working knowledge of the institution's community. In response 

to comments, the final rule also clarifies that information about 

lending, investment, and service opportunities in an institution's 

assessment area will, where appropriate, be obtained from tribal 

governments, as well as from other sources.

    Statutory limits on investment authority. Several thrift commenters 

had concerns about the application of the investment test to thrift 

institutions because of their limited investment authority. Rather than 

providing a blanket exemption from the investment test, the final rule 

modifies the ``capacity and constraints'' section of the performance 

context to clarify that examiners should consider an institution's 

investment authority in evaluating performance under the investment 

test. A thrift that has few or no qualified investments may still be 

considered to be performing adequately under the investment test if, 

for example, the institution is particularly effective in responding to 

the community's credit needs through community development lending 

activities.

    Safety and soundness. The CRA requires the agencies to assess an 

institution's record of helping to meet the credit needs of its entire 

community, consistent with the safe and sound operation of the 

institution. A number of industry commenters were concerned that the 

1994 proposal would not have stressed the importance of the safety and 

soundness of an institution's operation to the same extent as the CRA 

statute or the current regulations. These commenters responded 

primarily to the omission of a statement in the 1993 proposal that the 

CRA does not require any institution to make loans or investments that 

are expected to result in losses or are otherwise inconsistent with 

safe and sound operations. The agencies did not intend by this omission 

to encourage unprofitable or otherwise unsafe and unsound practices. 

The agencies firmly believe that institutions can and should expect 

lending and investments encouraged by the CRA to be profitable. The 

final rule explicitly reflects this belief and addresses the importance 

of safety and soundness considerations in several sections and in the 

ratings appendix. The agencies assess an institution's record of 

helping to meet community credit needs with careful attention to the 

constraints imposed by safety and soundness. As in other areas of bank 

and thrift operations, unsafe and unsound practices are viewed 

unfavorably. The ratings appendix specifically states: ``The bank's 

overall performance, however, must be consistent with safe and sound 

banking practices. * * *''

    Flexible underwriting approaches. The final rule states that the 

agencies permit and encourage an institution's use of flexible 

underwriting approaches to facilitate lending to low- and moderate-

income individuals and areas, but only if consistent with safe and 

sound operations. This is consistent with, and clarifies, language in 

the 1994 proposal. Some commenters urged that the rule expressly 

identify particular types of areas or borrowers covered by this 

provision. Mentioning particular types of borrowers or areas in the 

regulatory text is unnecessary and inconsistent with the principle of 

evaluating each institution and its community based on their 

characteristics, capacity, and needs. However, certain borrowers or 

areas, such as Native Americans residing in Indian country, may face 

difficulties obtaining credit that could warrant special consideration. 

The efforts of lenders that utilize innovative or flexible methods, in 

a safe and sound manner, to address these or other unusual underwriting 

issues are recognized under the lending test.

The Lending Test

    The lending test in the final rule is substantially similar to the 

1994 proposal. However, there are some significant changes in response 

to the comments.

    Consideration of originations and purchases. The 1994 proposal 

would [[Page 22164]] have evaluated home mortgage lending based on HMDA 

data, which is based on loan originations and purchases. However, the 

proposal would have required institutions to collect, report, and be 

evaluated on loans outstanding for other types of loans. The agencies 

took this approach in an effort to reduce burden on the industry, 

because institutions must already report loans outstanding on Call 

Reports and TFRs.

    The vast majority of commenters who addressed this issue (almost 

exclusively industry commenters) stated that use of originations would 

provide a substantially more accurate picture of actual lending 

activity, because current activity would not be obscured by past 

activity and the data would reflect seasonal variations and sale of 

loans in the secondary market. Moreover, using originations rewards, 

rather than penalizes, institutions for selling loans on the secondary 

market, which frees up capital for additional lending and increases 

credit availability. The commenters did not support the premise that 

use of originations would be more burdensome than using loans 

outstanding. Because institutions would have to collect and report 

additional information on each loan for CRA purposes, using loans 

outstanding would not significantly decrease burden. The bulk, if not 

all, of the burden reduction would be achieved by using the Call Report 

and TFR definitions. The final rule therefore uses originations and 

purchases, instead of loans outstanding, for all types of loans.

    Lines of credit are considered originated at the time the line is 

approved or increased; and an increase is considered a new origination. 

Generally, the full amount of the credit line (or in the case of an 

increase in an existing line, the amount of the increase) is the amount 

that is considered originated. Although some lines of credit may be for 

both home improvement and other purposes, only the amount that is 

considered to be for home improvement purposes is reported as a home 

improvement loan under HMDA. Lines of credit should be considered in 

assessing an institution's lending activity in all applicable loan 

types. Therefore, where a portion of a line of credit is reported under 

HMDA and another portion meets the definition either of a ``small 

business loan'' or a ``consumer loan,'' the full amount of the line of 

credit should be reported as a small business loan or collected as a 

consumer loan, as appropriate, and the agencies will also consider as a 

home mortgage loan the portion of the credit line that is reported 

under HMDA.

    The final rule contains an option for lenders also to provide data 

on loans outstanding, which may, in certain circumstances, enhance an 

examiner's understanding of an institution's performance. Institutions 

may also provide for examiner consideration information on letters of 

credit and commitments, as well as any other loan information. The 

language of the lending test (and the definition of ``community 

development loan'') has been adjusted as appropriate to reflect these 

changes.

    Consumer loan evaluation. Under the 1994 proposal, consumer lending 

would have been evaluated under the lending test only if an institution 

elected to have it evaluated and provided the necessary loan data. 

Thus, the 1994 proposal would have permitted an institution that is 

primarily a consumer lender not to be evaluated on a substantial 

portion of its business if it so chose. Under these circumstances, 

meaningful evaluation of certain institutions might have been very 

difficult. The final rule, therefore, changes the treatment of consumer 

lending. Under the rule, if a substantial majority of an institution's 

business is consumer lending, this lending is evaluated in the lending 

test. The rule does not impose any reporting requirements for consumer 

lending, however. If an examiner determines that a substantial portion 

of an institution's business is consumer lending, and the institution 

has not elected to provide consumer loan data, the examiner will 

evaluate consumer lending by analyzing an appropriate sample of the 

institution's consumer loan portfolio. In addition, this aspect of the 

final rule does not affect the evaluation of a limited purpose bank, 

because the bank will be evaluated under the community development 

test, not the lending test.

    The 1994 proposal would have required that institutions provide 

information on all consumer loans if they choose to provide information 

on any consumer loans. The agencies included this requirement because 

they were concerned that, otherwise, an institution might provide 

information only on those consumer products that would reflect well on 

the institution's CRA performance and would choose not to provide 

information on those products that would reflect poorly.

    Many industry commenters stated that the prospect of reporting all 

their consumer loan information was so burdensome that they would not 

report any information. On the other hand, consumer and community 

groups commented that, if consumer lending is to be considered in CRA 

at all, consumer loan reporting should be mandatory. After considering 

these comments, the agencies have decided to permit institutions to 

provide information on one or more categories (motor vehicle, credit 

card, home equity, other secured, and other unsecured) of consumer 

loans.

    Although an institution may have some opportunity to mask poor 

performance or otherwise inappropriately influence its CRA evaluation 

through selective provision of data, this opportunity will be limited 

by the provision in the final rule requiring an institution to maintain 

data on all loans in the category or categories in which it seeks to be 

evaluated. For example, if an institution provides information on its 

credit card lending, it would have to provide information on all its 

credit card lending, although it need not provide information on its 

motor vehicle lending. Furthermore, under the final rule, if an 

institution is a substantial consumer lender, the agencies will 

evaluate its consumer lending in appropriate categories regardless of 

whether the institution reports data for those categories.

    Relative weight of different lending categories. The 1994 proposal 

explicitly stated that home mortgage, small business, and small farm 

lending (and consumer lending if it was considered) would have been 

weighted to reflect the relative importance of the categories to the 

institution's overall business. The proposal also stated that community 

development lending would have been weighted to reflect the 

characteristics and needs of an institution's assessment area(s), the 

capacity and constraints of the institution, and the opportunities 

available for this lending. Several commenters expressed concern about 

the lack of certainty in these provisions; some also believed that 

community development lending would have received excessive weight. 

However, a fixed formula for the relative weight of different 

categories would require a determination that some categories of 

lending are uniformly more important than others, when the appropriate 

weight depends on the specific institution and its community. The 

agencies have removed the discussion of the relative weight assigned to 

different lending categories because examiners will determine the 

appropriate weight based on the performance context.

    Lending activity criterion. The lending test in the 1994 proposal, 

unlike the current CRA regulations, did not specifically consider the 

volume of lending activity--the number and amount of home mortgage, 

small business, small farm, and consumer loans located in the 

institution's [[Page 22165]] assessment area(s). Experience under the 

current regulations has demonstrated that this criterion can be useful 

in assessing performance. Therefore, based on further internal agency 

considerations, the final rule contains a lending activity performance 

criterion. This criterion encourages an institution that does not 

itself engage in the categories of lending evaluated under the lending 

test to seek designation as a wholesale or limited purpose institution 

so that the institution's CRA performance can be evaluated under 

criteria appropriate to the institution. The criterion also creates a 

disincentive for institutions to try to influence inappropriately the 

evaluation of their CRA performance by conducting activities viewed 

favorably under CRA in the institution and other activities in an 

affiliate. An institution's performance on the lending activity 

criterion will be assessed taking into account the information 

described in the section of the preamble discussing the performance 

context, including the institution's business strategy regarding the 

lending conducted by the institution itself and the lending conducted 

by affiliates.

    Market share analysis. Many commenters, particularly community and 

consumer groups, suggested that the market share evaluation of the 1993 

proposal be reinstated or that the agencies substitute an alternative 

objective ratio to serve as the linchpin for an institution's lending 

test rating. Other commenters, particularly those representing the 

industry, opposed using any market share analysis. In the agencies' 

opinion, the 1994 proposal struck the appropriate balance between 

objective performance measures and subjective judgments. A single, 

standardized set of performance evaluation tools is not appropriate 

because of the variety of institutions and the differences among the 

communities that they serve. The public evaluation prepared by the 

agencies will explain the data and analytic tools used to evaluate the 

institution.

    The geographic distribution of an institution's loans remains a 

component of the lending test. One element of the geographic 

distribution analysis, both in the 1994 proposal and in the final rule, 

is the amount of lending to low-, moderate-, middle- and upper-income 

geographies. As part of the performance context, examiners would 

consider, among other considerations described earlier in this 

preamble, the performance of other similarly-situated lenders. In this 

regard, examiners would use market share and other analyses to assist 

in evaluating the geographic distribution of an institution's lending 

where such analyses would provide accurate insight. However, the final 

rule does not require examiners to use any single type of analysis, and 

would not link a particular market share ratio, or any ratio, with a 

particular lending test rating.

    Proportion of lending within assessment areas. Under the final 

rule, as under the 1994 proposal, another component of the geographic 

distribution criterion is the proportion of total loans made in an 

institution's assessment area(s). Some commenters believed that this 

criterion is inappropriate; they noted that safety and soundness 

considerations require an institution to lend to a geographically 

dispersed area. This criterion is a consideration under the existing 

CRA rules and has proved over the years to be one useful indicator of 

the degree to which an institution is focused on serving its local 

community. Moreover, the agencies believe the criterion encourages an 

institution to draw its assessment area broadly enough to allow the 

dispersion of its lending and distribution of its loans among 

geographies of different income levels. Therefore, the agencies 

retained the provision unchanged in the final rule.

    Dispersion. The third component of the geographic distribution 

criterion of the lending test is the dispersion of the institution's 

lending activity. The 1994 proposal would have assessed the degree of 

dispersion ``throughout'' an institution's assessment area(s). For 

clarification, the word ``throughout'' has been changed to ``in'' in 

the final rule. The agencies will still examine the entire assessment 

area; however, an institution is not expected to lend evenly throughout 

or to every geography in its assessment area. Rather, an institution's 

lending pattern should not exhibit conspicuous gaps that are not 

adequately explained by the performance context.

    Borrower distribution. The lending test also considers the 

distribution of an institution's loans among borrowers of different 

income levels and businesses of different sizes. Favorable 

consideration is given for loans to low- and moderate-income persons 

and small businesses and farm loans outside of the institution's 

assessment area, provided that the institution has adequately served 

borrowers within its assessment area. The importance of this criterion, 

particularly in relation to the geographic distribution criterion, will 

depend on the performance context. For example, borrower distribution 

may be more important in rural areas or in assessment areas without 

identifiable geographies of different income categories; geographic 

distribution may be more important in urban areas and assessment areas 

with the full range of geographies of different income categories.

    Some commenters recommended that the lending test evaluate an 

institution's record of lending to different racial and ethnic groups 

and to women. The final rule does not incorporate this suggestion. The 

appropriate inquiry regarding service to particular racial or ethnic 

groups and men and women is whether the institution is operating in a 

non-discriminatory manner. Therefore, in arriving at an institution's 

assigned rating, the agencies consider whether there is evidence of 

discrimination in violation of the Fair Housing Act or Equal Credit 

Opportunity Act, or evidence of other illegal credit practices.

    Innovative or flexible lending practices. The final rule, like the 

1994 proposal, assesses an institution's use of innovative or flexible 

lending practices in a safe and sound manner to address the credit 

needs of low- and moderate-income individuals or geographies. An 

innovative practice is one that serves low- and moderate-income 

creditworthy borrowers in new ways or serves groups of creditworthy 

borrowers not previously served by the institution. Both innovative 

practices and flexible practices are favorably considered. Although a 

practice ceases to be innovative if its use is widespread, it may 

nonetheless receive consideration if it is a flexible practice. An 

institution need not provide lending data connected with a practice in 

order to receive consideration. For example, an examiner could consider 

an institution's secured credit card program as a flexible lending 

practice even though the institution has not provided its credit card 

loan data for evaluation under the other criteria of the lending test.

    Compliance with private commitments. Some commenters suggested 

that, in the lending test, the agencies should consider the extent to 

which an institution has fulfilled lending agreements that the 

institution has made with third parties. The final rule does not 

incorporate this suggestion. The CRA requires the agencies to assess an 

institution's record of helping to meet the credit needs of its 

community, not to enforce privately negotiated agreements. Therefore, 

an institution's record of fulfilling these types of agreements is not 

an appropriate CRA performance criterion.

    Affiliate lending. The 1994 proposal would have permitted 

consideration of affiliate lending at an institution's option or if the 

agency determined that [[Page 22166]] the affiliate's activity is 

integral to the institution's business. Many industry commenters 

opposed consideration of affiliate lending except at the institution's 

option on the ground that consideration without the institution's 

consent may be equivalent to extending CRA coverage to affiliates that 

may not be subject to the statute. Some community and consumer groups 

supported consideration of affiliate activity and urged that the 

regulatory language be strengthened to require the agencies to take 

affiliate lending into account under certain circumstances. In the 

final rule, affiliate lending is considered only at the election of the 

institution, except with regard to the lending activity criterion, 

where, as described earlier, it will provide context for the assessment 

in order to discourage an institution from inappropriately influencing 

an evaluation of its CRA performance by conducting activities that 

would be viewed unfavorably in an affiliate. The agencies also received 

comments that the phrase ``integral to the institution's business'' in 

the proposal was unclear. The final rule does not use this phrase.

    The other limitations on consideration of affiliate lending 

contained in the 1994 proposal have been retained in the final rule. 

However, the limitation against double-counting of loans has been 

modified to clarify that an institution can count as a purchase a loan 

originated by an affiliate, or count as an origination a loan sold to 

an affiliate, provided the same loans are not sold several times to 

inflate their value for CRA purposes.

    The agencies have added language to the final rule to clarify that 

affiliate lending is not considered in evaluating the proportion of 

total lending made within an institution's assessment area(s). The 

agencies also wish to clarify that if an institution elects to have the 

lending activities of its affiliates considered in the evaluation of 

the institution's lending, the geographies served by the affiliate's 

lending activities do not affect the institution's delineation of 

assessment area(s).

    Furthermore, the final rule would not change the existing 

supervisory authority of the agencies over institutions and their 

affiliates. Therefore, although lending by affiliates may be treated as 

lending by an institution, this treatment for CRA purposes will not 

permit a regulatory agency to examine any institution or its affiliate 

if it does not otherwise have such authority.

    Direct and indirect lending. Many consumer and community groups 

expressed concern that the 1994 proposal did not adequately emphasize 

direct lending by the institution as compared to indirect lending 

carried out through consortia and third parties. Other commenters, 

particularly from the industry, urged a return to the provisions of the 

1993 proposal that would have treated direct and indirect lending as 

interchangeable. The final rule clarifies that loans originated or 

purchased by third parties and consortia in which an institution 

participates or invests may only be considered if they qualify as 

community development loans and may only be considered under the 

community development lending criterion. Indirect loans will not affect 

an institution's performance under the other four lending test 

criteria. Under the final rule, direct lending performance is an 

essential element of an institution's CRA performance.

    Some commenters requested clarification whether an institution is 

required to participate directly in making or funding each loan that is 

made through a consortium or third party in order for the loan to be 

considered under the community development lending criterion of the 

lending test. An institution need not directly participate in the 

making or funding of consortia- and third party-loans for the loans to 

be considered (subject to the constraints set out in the rule) under 

the community development lending criterion, provided the loans meet 

the definition of community development loan. Loans originated directly 

on the books of the institution or purchased by the institution are 

considered to have been made directly by the institution, even if the 

institution originated or purchased the loans as a result of its 

participation in a loan consortium.

Investment Test

    The 1994 proposal would have focused on the dollar amount of an 

institution's qualified investments, the innovativeness and complexity 

of the qualified investments and their responsiveness to the credit and 

economic development needs of the community. The 1994 proposal also 

would have clarified that the investment test considers all qualified 

investments benefitting a broader statewide or regional area that 

included an institution's assessment area. Most of the comments on the 

investment test concerned the definition of qualified investment and 

have been discussed earlier in the preamble.

    Limited investment authority. One group of commenters representing 

institutions with statutory constraints on their authority to make this 

type of investment maintained that reliance on an investment test in 

assigning a CRA rating could unfairly stigmatize their CRA performance. 

As previously discussed, the final rule has modified the performance 

context for CRA evaluations to account for financial institutions with 

limited investment authority. These modifications would permit an 

institution with limited authority to make investments to receive a low 

satisfactory rating under the investment test, although it has made few 

or no qualified investments, if the institution has a strong lending 

record, thereby preventing potential anomalies in the CRA performance 

ratings.

    Disposition of branch premises. To implement the statutory 

requirement in 12 U.S.C. 2907(a), the final rule specifies that a 

donation, sale on favorable terms or rent-free occupancy of a branch 

(in whole or in part) in a predominantly minority neighborhood to any 

minority- or women-owned depository institution is a qualifying 

investment. Similar disposition of branch premises to a financial 

institution with a primary mission of promoting community development 

is also a qualified investment.

Service Test

    Compared to the 1993 proposal, the service test in the 1994 

proposal would have reduced the significance in the CRA performance 

evaluation of an institution's full service, ``brick and mortar'' 

branch structure by elevating the consideration given to alternative 

systems for delivering retail banking services (e.g., ATMs, mobile 

branches, loan production offices, or banking-by-telephone or banking-

by-computer). In this regard, the provision of retail banking services 

would have been evaluated on the basis of an institution's: (1) 

Distribution of branches and ATMs among low-, moderate-, middle-, and 

upper-income areas; (2) record of opening and closing branches and 

ATMs; (3) range of services to low-, moderate-, middle-, and upper-

income areas; and (4) efforts to make alternative delivery systems 

responsive to the needs of low- and moderate-income areas and 

individuals. In addition, the extent to which an institution provided 

innovative and responsive community development services would also 

have been considered under the service test. The final rule retains the 

essential structure and elements of the test as proposed but makes some 

modifications.

    Relative weight of branches and alternative delivery systems. The 

overwhelming majority of community and consumer group commenters stated 

[[Page 22167]] that the 1994 proposal placed too little emphasis on the 

location of an institution's full service branches in evaluating 

performance under the service test. Many of those commenters also were 

concerned that the proposed service test would have erroneously equated 

ATMs with full service branches. On the other hand, several industry 

commenters commended the proposal's recognition that full service 

branches should not be the determining factor under the service test as 

consistent with the trend in the industry toward the use of alternative 

service delivery systems.

    The final rule responds to these issues by adjusting the balance of 

the service performance evaluation in favor of full-service branches 

while still considering alternative systems. In this regard, references 

to ATMs in the criteria for evaluating the distribution of an 

institution's branches have been removed, and conforming changes have 

been made in the ratings appendix. These changes signify a recognition 

that convenient access to full-service branches within a community is 

an important factor in determining the availability of credit and non-

credit services. The focus of the service test, however, remains on an 

institution's current distribution of branches, and the test does not 

require an institution to expand its branch network or operate 

unprofitable branches.

    The final rule emphasizes that alternative systems for delivering 

retail banking services, such as ATMs, are to be considered only to the 

extent that they are effective alternatives in providing needed 

services to low- and moderate-income areas and individuals. 

Furthermore, network ATMs owned by other institutions do not receive 

the same consideration in an institution's evaluation as ATMs owned by 

or operated exclusively for that institution.

    An institution's branches and other service delivery systems need 

not be accessible to every part of an institution's assessment area. 

However, the service delivery systems should not exhibit conspicuous 

gaps in accessibility, particularly to low- or moderate-income areas or 

individuals, unless the gaps are adequately explained by the 

performance context.

    Other issues. The final rule conforms the community development 

services component of the service test to that of the investment test 

by giving consideration to community development services that benefit 

a broader statewide or regional area encompassing an institution's 

assessment area.

    Some of the specific suggestions in the comments were not 

implemented in the final rule. For example, the rule does not require 

institutions to provide basic banking services or low-cost checking 

accounts, because the CRA permits institutions substantial leeway to 

determine the specific policies and programs that help meet credit 

needs in their communities. In addition, the final rule does not 

evaluate the effectiveness of service performance on the basis of 

deposit growth. This measurement is not clearly related to helping to 

meet the credit needs of the community and could necessitate burdensome 

coding of deposit accounts on a geographic basis. Finally, debit cards 

are not a retail credit delivery system, and therefore the agencies 

have not included debit cards in the list of examples of alternative 

delivery systems for retail services.

Community Development Test

    The performance of wholesale and limited purpose institutions would 

have been evaluated in the 1994 proposal separately under the community 

development test. This test would have focused on the record of these 

institutions in helping to meet credit needs through community 

development lending, qualified investments, and community development 

services. The 1994 proposal also would have required wholesale or 

limited purpose institutions to serve a designated local area and would 

have placed limits on consideration of activities outside this 

designated area. The final rule maintains the community development 

test with some changes.

    Request for designation as a wholesale or limited purpose 

institution. In response to comments on the 1994 proposal, the final 

rule provides more detail on the process by which an institution is 

designated wholesale or limited purpose. An institution that seeks 

designation as wholesale or limited purpose must file a request in 

writing at least three months prior to the proposed effective date of 

the designation. If the designation is approved, it remains in effect 

until the institution requests revocation of the designation or until 

one year after the agency notifies the institution that the agency has 

revoked the designation on its own initiative. Thus, once an 

institution has received a designation, the institution need not 

reapply before each CRA examination.

    Benefit to assessment area. Many commenters, including both 

industry and some community group commenters, maintained that the 

limitations placed on considering out-of-assessment area activities 

were too restrictive and did not account for the broader business 

strategies and operations of wholesale and limited purpose 

institutions, which often serve communities on a nationwide basis.

    The final rule removes the specific limitation that community 

development activities outside an institution's assessment area be 

considered only up to the amount of activities within the institution's 

assessment area. Under the final rule, the agencies consider all 

activities that benefit the institution's assessment area(s) or a 

broader statewide or regional area that includes the assessment 

area(s). In addition, other activities receive full consideration as 

long as the institution has adequately addressed the needs of its 

assessment area.

    Technical changes and clarifications. The final rule clarifies that 

investments in third party community development organizations may be 

treated either as qualified investments or as community development 

loans (with the institution receiving credit for a pro rata share of 

the loans made by the third party, at the institution's option). In 

addition, the agencies note that a wholesale or limited purpose 

institution need not engage in all three categories of activities 

considered under the community development test but can perform well 

under the test by engaging in one or more of these categories. 

Technical changes have also been made to conform with the 

modifications, previously discussed, to the definition of community 

development loans, the definitions of wholesale and limited purpose 

institutions, and the focus of lending performance assessments on 

originations and purchases rather than loans outstanding.

Small Institution Performance Standards

    The small institution performance standards have been retained in 

the final rule essentially as proposed in 1994, except for the change 

in the eligibility threshold described earlier. As a technical matter, 

the final rule has been changed to clarify that an institution that was 

a small institution as of the end of the prior calendar year is 

examined as a small institution.

    Many commenters, predominantly representing community organizations 

but also including some larger institutions, stated that the 

streamlined approach would amount to a de facto exemption from CRA for 

small institutions. Other commenters, predominantly representing the 

industry, supported the proposal for streamlined examinations and an 

exemption from new data collection and [[Page 22168]] reporting. Many 

commenters representing the industry stated that data collection may 

place a greater relative burden on smaller institutions than larger 

institutions due to limitations in staff and financial resources. After 

considering the comments, the agencies have decided not to change 

materially the smaller institution performance standards. Examinations 

of small banks and thrifts will be streamlined and will not require the 

periodic reporting of new data. Examinations will be meaningful and 

will not be implemented as de facto exemptions.

    Performance criteria. The 1994 proposal provided that to determine 

whether a small institution's CRA record is satisfactory, the agencies 

would consider the institution's loan-to-deposit ratio, adjusted for 

seasonal variation and, as appropriate, other lending-related 

activities, such as loan originations for sale to the secondary 

markets, community development loans or qualified investments. This 

provision of the 1994 proposal responded to concerns following the 1993 

proposal that institutions that package and sell their loans would be 

disadvantaged when compared to portfolio lenders by a strict loan-to-

deposit ratio test. This provision of the 1994 proposal has been 

retained in the final rule. Evaluations will also take into account the 

institution's size, financial condition, and the credit needs of its 

assessment area.

    The final rule also requires consideration of the proportion of the 

institution's total lending made to borrowers in its assessment area. 

The agencies will take into account local lending and investment 

opportunities in assessing this criterion.

    In addition, the agencies will evaluate the distribution of loans 

and lending-related activities among individuals of different income 

levels and businesses and farms of different sizes. Where appropriate, 

the agencies will also evaluate the geographic distribution of loans in 

the institution's assessment area, including low- and moderate-income 

geographies. Contrary to the concerns expressed by some commenters, 

however, a small institution is not expected to lend evenly throughout 

its service area; rather, loan distribution will be evaluated within 

the context of an institution's capacity to lend, local economic 

conditions, and lending opportunities in the assessment area.

    The agencies also will evaluate whether an institution has taken 

appropriate action, as warranted, in response to written complaints 

about the institution's performance in helping to meet the credit needs 

of its assessment area(s). Some commenters suggested that complaints 

resolved satisfactorily for the complainant not be considered in the 

evaluation. The agencies will consider those complaints, but their 

satisfactory resolution will be a favorable element in an evaluation. 

Other commenters expressed concern that the agencies might not 

adequately consider bona fide complaints from community members. 

However, the agencies intend to consider all CRA complaints in the 

course of an examination. Therefore, this criterion is retained in the 

final rule as proposed.

    Elements of outstanding performance. Some commenters requested a 

clarification of the circumstances under which a small institution 

could earn an ``outstanding'' rating. Others urged that some 

flexibility be provided to consider a range of activities that enhance 

credit availability and promote community development. Under the final 

rule, in addition to determining whether an institution has exceeded 

some or all of the standards for a satisfactory rating, the agencies 

will consider a small institution's investment and service performance 

based on the broad range of investment and service activities discussed 

in the rule for other institutions.

Strategic Plan

    The provisions of the strategic plan in the 1994 proposal have been 

adopted largely as proposed, with some changes.

    The 1994 proposal provided that, as an alternative to being rated 

under the lending, service, and investment tests, or the small 

institution performance standards, a bank or thrift could submit to its 

supervisory agency for approval a strategic plan developed with 

community input detailing how the institution proposed to meet its CRA 

obligation. The 1994 proposal made clear that an institution would not 

be assessed under a plan unless the plan had been approved by its 

supervisory agency. To facilitate examinations of institutions with 

approved plans, the final rule clarifies that an institution is only 

evaluated under a plan if the plan is in effect and if the institution 

has operated under an approved plan (although not necessarily the 

particular plan currently in effect) for at least one year. Affiliates 

may prepare joint plans. The final rule permits activities to be 

allocated among affiliated institutions at the institutions' option, 

provided that the same activities are not considered for more than one 

institution. This change was made in response to comments requesting 

greater flexibility and increased opportunities for affiliated 

institutions sharing the same assessment area(s) to work together to 

help meet the credit needs of their communities and, in particular, in 

low- and moderate-income areas.

    Public participation. The final rule retains the public 

participation provisions in the 1994 proposal. The final rule requires 

an institution informally to seek suggestions from the public while 

developing a plan. Once the institution has developed a plan, it must 

publish notice of the plan and solicit written public comment for at 

least 30 days. In order to avoid unduly lengthening the plan approval 

process, the final rule does not extend the minimum comment period. 

After the comment period, the institution shall submit the plan to its 

regulator, along with any written comments received. If the plan was 

revised in light of the comments received, the institution shall also 

submit the plan in the form released for public comment. The agencies 

have added in the final rule a requirement that an institution submit 

with its plan a description of its informal efforts to seek suggestions 

from members of the public. As under the 1994 proposal, the final rule 

states that a plan will be approved if the agency fails to act on it 

within 60 days after submission, unless the agency extends the review 

period for good cause.

    Because of the importance of constructive community involvement in 

the plan process, the agencies have not changed in the final rule the 

amount of public participation required. Requiring an institution to 

seek informal suggestions in formulating a plan, and then to solicit 

formal comment before submitting a plan to the agency, encourages 

consultation between an institution and its community, including local 

government, community leaders, the public and tribal governments. There 

is no need for a further comment period after the institution submits 

its proposed plan to the agency because such a comment period could 

undermine the direct communication and consultation between an 

institution and its community that is most beneficial to the process.

    Several comments appeared to misunderstand why the strategic plan 

provides for comment from the public. The strategic plan option 

provides institutions an opportunity to tailor their CRA objectives to 

the needs of their community and their capacity and expertise. Several 

industry comments were concerned that under the strategic plan option, 

community organizations would play an inappropriate role in an 

[[Page 22169]] institution's operations. However, the purpose of the 

consultation is for the institution to develop the fullest possible 

information about the needs of its community and how these needs might 

be met. The institution nevertheless makes all decisions regarding how 

it plans to help meet those needs. In reviewing the public 

participation, the agencies will not consider whether community 

organizations unanimously support the plan, but whether the institution 

made an appropriate investigation to determine the needs of its 

community, and whether the goals of the plan serve those needs.

    As a technical clarification, the final rule provides that an 

institution may impose a reasonable charge for copying or mailing a 

plan but may not charge for reviewing the plan.

    Assessment of performance under the plan. Under the final rule, as 

under the 1994 proposal, the agencies will generally rate an 

institution's performance under an approved plan solely in relation to 

goals set out in the plan. An institution has the option, however, to 

elect in its plan to be subject to the standard tests should it fail to 

meet substantially its ``satisfactory'' goals under the plan. The final 

rule makes this election clear. An institution operating under an 

approved plan would, during the period of the plan, not be subject to 

assessment under the standard tests, unless the institution so chose. 

In considering whether an institution has substantially met plan goals, 

an agency will give consideration to circumstances beyond the 

institution's control, such as economic conditions, that have affected 

its ability to perform.

    Confidential information. A number of industry commenters indicated 

that the possibility of public disclosure of confidential information 

presented a major disincentive to their use of the strategic plan 

alternative. In response to similar comments on the 1993 proposal, the 

1994 proposal would have permitted institutions to submit additional 

information to the relevant agency on a confidential basis. The final 

rule includes this provision, which adequately addresses 

confidentiality concerns.

    Data collection and reporting responsibilities. Despite industry 

comments to the contrary, the final rule provides that approval of a 

plan does not affect an institution's data collection responsibilities. 

These data are useful to the agencies in assessing overall lending in 

communities, and would also be of value to the public. Since the 

institution's plan will be in its public file, the public will have the 

appropriate context in which to evaluate the lending data.

Assigned Ratings

    In the final rule, as under the 1994 proposal, an institution will 

be assigned one of the four assigned ratings required by the statute: 

``outstanding,'' ``satisfactory,'' ``needs to improve,'' or 

``substantial noncompliance.'' (12 U.S.C. 2906(b)(2)) For institutions 

that are evaluated under the community development test for wholesale 

or limited purpose institutions, the small institution performance 

standards, or an approved strategic plan, the rating on these tests 

will be the institution's assigned rating with adjustment for any 

evidence of discrimination. Retail institutions that are evaluated 

under the lending, investment and service tests will be assigned a 

rating based upon the assigned rating principles and the matrix that 

implements these principles, also with adjustment for any evidence of 

discrimination.

    Ratings principles and matrix. A number of comments discussed the 

principles and methodology by which an assigned rating would be given 

to retail institutions evaluated under the lending, investment and 

service tests. The 1994 proposal set forth five principles that 

governed the assignment of this rating. The methodology for calculating 

the assigned rating was described in Appendix A. The proposal would 

have required that an institution's rating on the lending test count 

for at least 50 percent of its assigned rating. Furthermore, an 

institution would have been required to achieve a ``satisfactory'' 

rating on the lending test in order to receive an assigned rating of 

``satisfactory.'' In addition, the 1994 proposal would have allowed 

investment and service performance to raise a institution's assigned 

rating if it had earned at least a ``satisfactory'' rating on the 

lending test. Poor performance on either the investment or service test 

also could have negatively affected an institution's assigned rating. 

The proposal would have required the agencies to adjust ratings for all 

institutions, regardless of which test the agencies used to evaluate 

their performance, to take into consideration evidence of 

discriminatory or other illegal credit practices. Finally, an 

institution that otherwise would have received a ``needs to improve'' 

rating would have been rated as ``substantial noncompliance'' if it 

received no better than a ``needs to improve'' rating on each of its 

two previous examinations.

    Commenters generally supported the 1994 proposal's emphasis on 

lending performance, but a number were concerned about several 

apparently anomalous ratings that would have resulted from applying the 

rating principles and the matrix in the appendix. Several commenters, 

particularly community groups, were concerned that an institution could 

receive an assigned rating of ``satisfactory'' even if it received a 

rating of ``substantial noncompliance'' on both the investment and 

service tests, if its rating on the lending test was at least a ``high 

satisfactory.'' In addition, an institution with a rating of 

``substantial noncompliance'' on either the service or investment test 

could get an ``outstanding'' composite rating if its rating on the 

lending and the third test was ``outstanding.'' These commenters 

suggested revising the rating principles and matrix to avoid these 

anomalous results.

    After considering the comments, the agencies have revised the final 

rule to eliminate these anomalies. The agencies eliminated the 

principle that an ``outstanding'' rating on the lending test and either 

the service or investment test would mean an ``outstanding'' assigned 

rating even if the rating on the third test was ``substantial 

noncompliance.'' The agencies also eliminated the principle that an 

institution's rating on the lending test would count for at least 50 

percent of its assigned rating. This change does not alter the 

agencies' emphasis on the primacy of lending when evaluating CRA 

performance, because no institution may receive an assigned rating of 

``satisfactory'' unless it receives a rating of at least ``low 

satisfactory'' on the lending test.

    In light of the comments, the matrix that sets forth the 

methodology for aggregating an institution's scores on the lending, 

service and investment tests to arrive at an assigned rating has also 

been revised. The number of points to be given for each rating on the 

lending, service and investment tests remains unchanged as shown in the 

following table.

                                                                                                                

[[Page 22170]]

------------------------------------------------------------------------

         Component test ratings            Lending   Service  Investment

------------------------------------------------------------------------

Outstanding.............................        12         6          6 

High Satisfactory.......................         9         4          4 

Low Satisfactory........................         6         3          3 

Needs to Improve........................         3         1          1 

Substantial Noncompliance...............         0         0          0 

------------------------------------------------------------------------

  The number of points needed to achieve each of the four composite 

assigned ratings has been modified slightly, as shown in the following 

table, to remove the anomalies discussed earlier.

------------------------------------------------------------------------

                Points                     Composite assigned rating    

------------------------------------------------------------------------

20 or over...........................  Outstanding.                     

11 through 19........................  Satisfactory.                    

5 through 10.........................  Needs to Improve.                

0 through 4..........................  Substantial Noncompliance.       

------------------------------------------------------------------------

    To ensure that an institution does not receive an assigned rating 

of ``satisfactory'' unless it receives a rating of at least ``low 

satisfactory'' on the lending test, an institution's assigned rating 

will be calculated using three times the lending test score if the 

institution's point total exceeds three times the lending test score.

    The agencies have removed the matrix from Appendix A. This change 

will allow the agencies some flexibility in adjusting the matrix to 

prevent any other unintended anomalies that may be found during the 

examination process. If the agencies change the matrix in the future, 

the new matrix will be published for information, but not necessarily 

for comment, in the Federal Register.

    Automatic downgrade of third ``needs to improve'' rating. The 

agencies have also removed the requirement that an institution's CRA 

rating be downgraded automatically from ``needs to improve'' to 

``substantial noncompliance'' if it received no better than a ``needs 

to improve'' rating on each of its two previous examinations. Even 

though the automatic downgrading has been eliminated in the final rule, 

the agencies will consider an institution's past performance in its 

overall evaluation. If the poor performance continues, an institution 

could be rated ``substantial noncompliance'' if prior ratings were 

``needs to improve'' and the institution has not made efforts to 

improve its performance.

    Weight of service test. Some consumer groups urged that an 

institution be required to get at least a ``low satisfactory'' on the 

service test in order to get an assigned rating of ``satisfactory'' or 

better. The agencies considered this suggestion, but decided that 

because the CRA's focus is on helping to meet a community's credit 

needs, it would be inappropriate to impose this requirement. However, 

the changes to the ratings principles and matrix increase the weight of 

both the service and investment tests.

    High satisfactory and low satisfactory ratings. Some commenters 

found confusing the use of a ``high'' and ``low'' satisfactory rating 

on the lending, service and investment tests and only a 

``satisfactory'' on the assigned rating. Because a wide range of 

performance may be rated as satisfactory, the agencies decided to keep 

the five ratings on the underlying tests, even though the assigned 

ratings are limited to the four statutory ratings. This will permit the 

agencies, banks and thrifts, and their customers to recognize the 

stronger performances on the lending, investment, and service tests of 

those institutions that are doing a very good, but not quite 

outstanding, job of helping to meet the credit needs of their 

communities.

Effect of CRA Performance on Applications

    The CRA requires the agencies to consider an institution's CRA 

performance record when considering an application by the institution 

to establish a deposit facility. The statute defines applications for a 

deposit facility as including applications for a Federal financial 

institution charter or FDIC deposit insurance, applications to 

establish or relocate a branch or home office, and applications for 

mergers, consolidations, or the purchase of assets or assumption of 

liabilities of a regulated financial institution. The 1994 proposal 

provided that in considering an institution's application for a deposit 

facility, the agencies would consider the institution's CRA performance 

and take into account any views expressed by interested parties 

submitted in accordance with the applicable agency's rules and 

procedures. The proposal also stated that an institution's record of 

CRA performance could provide a basis for approving, denying, or 

conditioning approval of an application.

    A number of comments from financial institutions asked the agencies 

to create a ``safe harbor'' from CRA protests for banks with good CRA 

ratings that apply to establish a deposit facility. Some commenters 

suggested that a ``safe harbor'' would provide an incentive to achieve 

an outstanding rating. Community and consumer groups, on the other 

hand, opposed any sort of safe harbor from CRA protests.

    The agencies have consistently recognized that materials relating 

to CRA performance received during the applications process can and do 

provide relevant and valuable information. The agencies also continue 

to believe, as provided in the Interagency Policy Statement Regarding 

the Community Reinvestment Act, that information from an examination is 

a particularly important consideration in the applications process 

because it represents the on-site evaluation of an institution's CRA 

performance by its primary Federal regulator. The final rule implements 

without change the balance given in the 1994 proposal between CRA 

performance ratings and material information presented through public 

comment in the applications process.

    The agencies noted in the preamble to the 1993 proposal that the 

frequency with which the agencies will examine an institution will 

depend in part on its record of performance. A similar discussion was 

inadvertently omitted from the 1994 proposal. Examination frequency 

will be based, in part, on an institution's record of performance. This 

policy combines an efficient use of agency resources with an incentive 

for good performance.

Assessment Area Delineation

    As a result of numerous comments received on this issue, the final 

rule makes several changes to the definition of service area in the 

1994 proposal.

    Assessment area. The CRA requires the agencies to assess an 

institution's record of helping to meet the credit needs of its local 

community. The assessment area as defined in the final rule represents 

the community within which the agencies assess an institution's record 

of CRA performance.

    As noted earlier in the preamble, in the final rule, the term 

``assessment area'' replaces the term ``service area,'' which was used 

in the 1993 and 1994 proposals. The agencies believe the term 

``assessment area'' more accurately [[Page 22171]] describes the 

geographic area within which the specific performance criteria in the 

rule will be assessed. Based on the continuing criticisms of the 

``delineated community'' in the current regulation and the ``service 

area'' in both the 1993 and 1994 proposals, the agencies have decided 

to place a different emphasis on the institution's specific delineation 

and the methods used by the institution to establish that delineation. 

The agencies do not expect that, simply because a census tract or block 

numbering area is within an institution's assessment area, the 

institution must lend to that census tract or block numbering area. The 

capacity and constraints of the institution, its business decisions 

about how it can best help to meet the needs of its assessment area, 

including those of low- and moderate-income neighborhoods, and other 

aspects of the performance context, would be relevant to explain why 

the institution is not serving portions of the assessment area(s).

    The rule also clarifies that an institution's delineation of its 

assessment area(s) is not separately evaluated as an aspect of CRA 

performance, although the delineation will be reviewed for compliance 

with the assessment area requirements of the rule. If, for example, an 

institution delineated the entire county in which it is located as its 

assessment area but could have delineated its assessment area as only a 

portion of the county, it will not be penalized for lending only in 

that portion of the county, so long as that portion does not reflect 

illegal discrimination or arbitrarily exclude low- or moderate-income 

geographies.

    Assessment area boundaries. The 1994 proposal would have prohibited 

a financial institution, other than a wholesale or limited purpose 

institution, from delineating a service area that extends substantially 

across boundaries of a metropolitan statistical area (MSA) or state 

boundaries, unless the service area was located in a multistate MSA. 

Further, the proposal would have prohibited an institution's service 

area from reflecting illegal discrimination or arbitrarily excluding 

low- and moderate-income geographies (taking into account the 

institution's size and financial condition).

    The final rule states that an institution shall not delineate an 

assessment area extending substantially across the boundaries of a 

consolidated metropolitan statistical area (CMSA). An institution shall 

delineate separate assessment areas for the areas inside and outside 

the CMSA and for different CMSAs. The 1994 proposal expressed these 

limitations in terms of MSAs rather than CMSAs. The change in the final 

rule has been made to address a technical shortcoming in the 1994 

proposal, but does not change its substance. The final rule retains the 

provision from both the 1993 and 1994 proposals that an assessment area 

not extend substantially across state boundaries unless the assessment 

area is located in a multistate MSA. The final rule applies these 

limitations to wholesale and limited purpose institutions as well as 

other institutions because of changes made to the community development 

test.

    To simplify the process of delineating an assessment area, the 

final rule encourages institutions to establish assessment area 

boundaries that coincide with the boundaries of one or more MSAs or one 

or more contiguous political subdivisions, such as counties, cities, or 

towns. An institution is permitted, but is not required, to adjust the 

boundaries of its assessment area(s) so as to include only the portion 

of a political subdivision it reasonably can be expected to serve. This 

provision gives institutions some flexibility in their delineations, 

particularly in the case of an area that would otherwise be extremely 

large, of unusual configuration, or divided by significant geographic 

barriers. As with the 1994 proposal, however, such adjustments may not 

arbitrarily exclude low- and moderate-income geographies from the 

institution's assessment area(s). For purposes of assessment area 

delineation, an institution should use the MSA and CMSA boundaries in 

effect on January 1 of the calendar year in which the institution is 

making the delineation.

    Equidistance principle. The 1994 proposal would have adopted the 

effective lending territory principle from the current regulations in 

slightly modified form. The 1994 proposal would have explicitly linked 

an institution's CRA obligations to the areas around its branches and 

deposit-taking ATMs, rather than its other non-deposit taking offices. 

The service area delineated by the institution would have had to 

include all geographies around its branches in which the institution 

originated or had outstanding during the previous year a significant 

number and amount of home mortgage, small business and small farm, and 

consumer loans and any other geographies equidistant from its branches 

and deposit-taking ATMs.

    The final rule eliminates the equidistance principle as a required 

part of the delineation of an assessment area. This change provides 

institutions greater flexibility in their delineations. Several 

commenters suggested that, in certain circumstances, the equidistance 

requirement could be inappropriate, because institutions do not 

routinely serve areas that are uniformly equidistant from their 

deposit-taking offices. The final rule retains the requirement that an 

assessment area not arbitrarily exclude low- or moderate-income 

geographies.

    Wholesale and limited purpose institutions. The final rule requires 

that the assessment area(s) for a wholesale or limited purpose 

institution must generally consist of one or more MSAs or one or more 

contiguous political subdivisions in which the institution has its main 

office, branches, and deposit-taking ATMs. This requirement is 

substantively consistent with the 1994 proposed delineation of service 

area for wholesale and limited purpose institutions, but the final rule 

differs from the 1994 proposal in two ways. First, the final rule 

specifies that the assessment area must generally consist of one or 

more MSAs or contiguous political subdivisions; the 1994 proposal would 

have required the institution to delineate ``an area or areas around 

its offices.'' Second, the assessment area has been modified to conform 

to changes made to the scope of the community development test. The 

community development test permits consideration of community 

development activities that are outside of an institution's assessment 

area, but that are in a broader statewide or regional area that 

includes the institution's assessment area. As a result, an institution 

need not delineate a statewide or regional, rather than local, 

assessment area in order to receive consideration for these activities.

    Use of assessment area. In response to comments indicating concern 

that examiners might modify the area delineated by the institution, the 

final rule explicitly provides that the agencies will use the 

assessment area delineated by the institution, unless they determine 

that the assessment area does not comply with the requirements for 

assessment areas set forth in the final rule. If the assessment area 

fails to comply with the rule's requirements, the examiner will 

designate an area that does comply and will use that area in evaluating 

the institution's performance.

    Technical changes and clarifications. The final rule includes other 

technical changes to provide clarification. For example, some 

commenters interpreted the use of the phrase ``significant number and 

amount of loans'' in the 1994 proposal to have a different meaning than 

the phrase ``substantial portion of its loans'' in the current 

[[Page 22172]] regulations. The agencies did not intend a different 

meaning and have used the wording from the current regulations in the 

final rule. In addition, changes in the final rule reflect the rule's 

shift in focus from loans outstanding to originations and the different 

circumstances under which the lending test considers consumer loans.

Data Collection and Reporting

    In the final rule, the agencies continued their efforts to 

streamline data collection and reporting requirements in response to 

comments concerning potential burden. The final rule simplifies data 

requirements and eliminates Appendix C.

    Application of data collection provisions to small institutions and 

wholesale and limited purpose institutions. The 1994 proposal would not 

have applied small business and farm loan and community development 

loan data requirements to small institutions. Some commenters 

criticized the exemption from data collection and reporting 

requirements for small institutions because only a subset of data would 

actually be collected, restricting the regulators' ability accurately 

to assess the overall performance of institutions in helping to meet 

credit needs. These commenters stated that the benefits of collecting 

the data across the industry outweighed the associated burden. However, 

the burden on small institutions would be significant and the benefit 

less than the commenters assert. Therefore, the final rule does not 

subject a small institution to additional data collection and reporting 

requirements. The volume of originations of loans other than home 

mortgage loans in a small institution will generally be small enough 

that an examiner can view a substantial sampling of loans without 

advance collection and reporting of information by the institution. In 

addition, although small institutions are large in number, they have a 

relatively small percentage of the total assets of the industry.

    An institution that was a small institution during the prior 

calendar year but is no longer a small institution would be subject to 

data collection and maintenance requirements but not data reporting 

requirements. The data reporting requirements do not apply because the 

institution would not have collected the data to report. The 

institution would be subject to data reporting requirements in the year 

following the first year for which it was required to collect data, 

provided the institution does not qualify as a small institution at the 

time the data must be reported.

    The 1994 proposal would have required large wholesale and limited 

purpose institutions to collect and report data. Some commenters urged 

that wholesale and limited purpose institutions be exempt from data 

collection and reporting. The final rule does not include an exemption. 

The data are necessary for the agencies to determine whether the 

institutions initially qualify and continue to remain qualified for 

treatment as wholesale or limited purpose institutions. The data also 

will be helpful in understanding the context in which the performance 

of other institutions should be evaluated.

    Collection and reporting of originations and purchases rather than 

loans outstanding. For the reasons stated in the discussion of the 

lending test earlier in the preamble, the final rule requires reporting 

of and evaluation based on originations and purchases for all 

categories of loans. Institutions still have the option to provide data 

on loans outstanding, which examiners would consider to round out the 

picture of lending performance.

    Community development loan reporting. The community development 

loan reporting provisions in the final rule have been modified to 

reflect the decision to rely on originations and purchases. 

Institutions, except small institutions and institutions that were 

small institutions during the prior calendar year, are required to 

report to their primary regulator annually on March 1 the aggregate 

number and aggregate amount of community development loans originated 

and purchased during the prior calendar year. The agencies will include 

this information in the CRA Disclosure Statements that they prepare for 

each institution, and which an institution shall place in its public 

file within three days of receipt.

    Some commenters requested reporting and disclosure of more detailed 

information on community development loans, including a breakdown by 

location and purpose of the loan. The agencies did not adopt these 

suggestions because the additional burden would outweigh the potential 

usefulness of more specific data. In assessing an institution's 

performance under the lending or community development test, examiners 

will review actual community development loan files to determine the 

complexity and innovativeness of the loans and their responsiveness to 

credit and community development needs. Examiners will discuss the 

community development loans reviewed in the public portion of the 

institution's CRA performance evaluation. The discussion will include 

the nature and location (if relevant) of the activities supported by 

the loans reviewed.

    Consumer loan collection and maintenance. In the final rule, as in 

the 1994 proposal, data collection and maintenance are optional for 

consumer loans, and there are no reporting requirements. As described 

in the discussion of the lending test earlier in the preamble, an 

institution may provide data on one or more categories of consumer 

loans, such as motor vehicle loans, and not on others. However, if an 

institution provides data for any loan in a category, it is required to 

provide data for all loans in the category. For each loan category for 

which an institution elects to provide data, the data must include for 

each loan in the category originated or purchased since the last CRA 

examination: (1) the amount at origination or purchase, (2) the loan 

location, and (3) the gross annual income of the borrower that the 

institution considered in making the credit decision. If the 

institution does not consider income in making an underwriting 

decision, it need not collect income information. Further, if the 

institution routinely collects, but does not verify, a borrower's 

income when making a credit decision, it need not verify the income for 

purposes of data maintenance. The location of the loan must be 

maintained by census tract or block numbering area.

    Reporting of loan information outside assessment areas and outside 

MSAs. Some commenters asked that institutions not be required to report 

small business and small farm loans located outside their assessment 

areas or outside MSAs. The agencies have not made this change in the 

final rule. The data on lending in rural areas provide important 

information on how well institutions are serving rural communities 

where they have branches. The data are also necessary for the lending 

test assessment criterion that evaluates the degree to which an 

institution's lending is inside its assessment area. Finally, the 

lending data provide information that assists examiners in 

understanding the context in which the performance of other 

institutions should be evaluated. The commenters that opposed reporting 

of small business and small farm loans outside their assessment areas 

or outside MSAs also generally opposed the proposed change to require 

institutions that are not small institutions and are subject to HMDA to 

report the location of applications and originations of home mortgage 

loans outside the MSAs in which the [[Page 22173]] institutions have 

offices. The agencies have adopted the proposed change despite these 

objections for the same reasons that the agencies did not change the 

final rule for collecting of small business and small farm loans 

outside MSAs or assessment areas. Conforming amendments to Regulation C 

(HMDA) have been adopted by the Board.

    Race and gender information on small business borrower not 

required. The 1994 proposal would have required each institution, other 

than a small institution, to collect and report data on the race and 

gender of small business and small farm borrowers. This provision, 

which was the most frequently addressed issue in the comments, was 

proposed in order to support the fair lending component of the CRA 

assessment. The agencies have removed this proposed requirement from 

the final rule.

    Many commenters, including virtually every community or consumer 

group that addressed the issue, supported the provision. These 

commenters believed that the information was critical to determine 

whether discrimination was occurring in small business and small farm 

lending. The commenters noted the value of HMDA data on race and gender 

in monitoring home mortgage lending. Nearly every industry comment 

opposed the collection as proposed. These commenters stated that the 

requirement was burdensome and the data, as proposed to be collected 

and reported, would be of limited utility. They asserted that reporting 

institutions would be at a competitive disadvantage because small 

institutions and non-financial institution lenders not only would not 

be required to collect and report the information but actually would be 

prohibited from doing so (because of the Board's Regulation B, 

implementing the Equal Credit Opportunity Act). Some commenters also 

questioned the relevance of the race and gender data to CRA. A few 

industry commenters endorsed collection of race and gender data, 

provided it was done through Regulation B. A larger number opposed 

collection, but believed that, if the agencies concluded the data were 

necessary, collection should be required under Regulation B.

    The agencies have removed the proposed requirement from the final 

rule. Although the agencies believe that fair lending performance is 

directly relevant to CRA performance, they recognize the anomaly of 

requiring some institutions to collect and report information that 

other lenders are prohibited from collecting. Therefore, they believe 

that it is more appropriate to address the issue of race and gender 

data in fair lending regulations that apply equally to all lenders.

    Small business data collection, maintenance, and reporting 

generally. In response to industry comments regarding the burden 

associated with the small business and small farm loan data 

requirements, the final rule streamlines the data collection, 

maintenance and reporting. The agencies have replaced loan-by-loan 

reporting using loan registers with aggregate reporting by census 

tract.

    The 1994 proposal would have required lenders to indicate whether 

small business borrowers had gross annual revenues $1 million or less. 

Some commenters suggested that the requirement be eliminated because 

they believed it was burdensome and unnecessary. The final rule retains 

the requirement. The burden of collecting this information is minimal, 

because $1 million is already used in the Board's Regulation B as a 

threshold for certain requirements related to adverse action 

notifications and record retention. Therefore, many institutions 

already have a reason to track business and farm loans based on this 

revenue figure.

    The information on the revenue size of business and farm borrowers 

is useful because, in combination with loan amount information, it will 

enable the agencies to make accurate judgments about the size of 

businesses and farms receiving reported loans. Some commenters 

questioned whether an institution should report the revenue of the 

entity to which the loan is actually extended or of its parent 

corporation if the entity is a subsidiary. An institution should report 

the revenues that the institution considered in making its credit 

decision.

    Some commenters asked that the agencies require collection and 

reporting of data on applications and denials. The agencies did not 

adopt this suggestion. The small business lending process is generally 

far less formal than the consumer or home mortgage lending process. 

Sometimes institutions do not require written applications for small 

business loans; when they do, applications often come after potential 

problems have been addressed in informal discussions. Because the 

agencies do not believe information on applications and denials would 

be particularly helpful, the final rule does not require collection or 

reporting of information on small business and small farm applications 

and denials. Instead, institutions are required to report all small 

business and small farm loans that they originate or purchase.

    Under the final rule, each covered institution is required to 

collect and maintain in a standardized, machine readable format the 

following information on each small business loan originated or 

purchased since the prior CRA examination: (1) amount at origination; 

(2) location; and (3) an indicator whether the loan was to a business 

with $1 million or less in gross annual revenues. The location of the 

loan must be maintained by census tract or block numbering area.

    Each covered institution is required to report in machine-readable 

form annually on March 1 the following information, aggregated for each 

census tract/block numbering area in which the institution made at 

least one small business or small farm loan during the prior calendar 

year: (1) number and amount of loans with original amounts of $100,000 

or less; (2) number and amount of loans with original amounts of more 

than $100,000 but less than or equal to $250,000; (3) number and amount 

of loans with original amounts of more than $250,000; and (4) number 

and amount of loans to businesses and farms with gross annual revenues 

of $1 million or less (using the revenues the institution considered in 

making its credit decision).

    Need for data collection and reporting. Some commenters continued 

to question the validity and propriety of any data collection and 

reporting for larger institutions. As discussed earlier, the agencies 

have significantly reduced the data collection and reporting from that 

originally proposed, and where feasible the rule relies on existing 

data collections. However, the rule continues to provide for some 

additional data collection and reporting by larger institutions. In a 

performance-based CRA process, these requirements are necessary to 

permit the agencies to carry out their statutory obligation to examine 

and assess institutions' CRA records and to prepare the public sections 

of CRA performance evaluations. The emphasis on actual performance 

responds to the nearly universal criticism that current CRA 

examinations rely too heavily on documentation of an institution's 

policies, procedures and community contacts rather than lending. While 

the agencies recognize that the collection of data regarding lending 

activity will impose burden on many institutions, the final rule has 

been tailored to rely primarily on data readily available to or already 

collected by institutions in order to minimize the collection burden. 

In addition, the burden of collecting actual loan performance data will 

be offset somewhat by the elimination of requirements under the current 

CRA [[Page 22174]] evaluation scheme that institutions document 

policies, procedures, and CRA contacts. Finally, the agencies will 

prescribe a standardized format for data maintenance and reporting and 

make available software to facilitate data maintenance and reporting.

    Disclosure of small business and small farm loan data. Under the 

1994 proposal, every large institution would have been required to 

include in its public file the following information on small business 

loans: (1) the number and amount of loans in low-, moderate-, middle- 

and upper-income census tracts; (2) a list of each census tract with at 

least one loan; (3) the number and amount of loans inside the 

institution's service areas and outside the institution's service 

areas; (4) the number and amount of loans to businesses with gross 

annual revenues of $1 million or less; (5) the number and amount of 

loans to minority-owned businesses; and (6) the number and amount of 

loans to women-owned businesses. The proposal did not provide that the 

agencies would make any aggregate data available to the public.

    The vast majority of consumer and community group commenters 

maintained that the public disclosure provisions of the 1994 proposal 

were not sufficient. They asked that small business loan data be made 

available to the public in a HMDA-like format for individual 

institutions and in aggregated form. They asked that, at a minimum, 

data be available to the public on an aggregate and institution-by-

institution basis by individual census tract, including for each census 

tract the number and volume of loans. Otherwise, the public would not 

be able to judge how an institution is performing in one low-income 

neighborhood as compared to another and, without incurring unreasonable 

cost, would not be able to compare the performance of one institution 

with the performance of another. The commenters also expressed concern 

about the agencies' using certain data to evaluate institutions but not 

making the data available to the public. Industry commenters generally 

opposed detailed data collection and reporting requirements as 

burdensome.

    Census tract-by-census tract information provides the most detailed 

information to the public. However, some commenters were concerned that 

disclosure at this level for each institution might invade the privacy 

of small business and small farm borrowers, could reveal protected 

business information, might erroneously signal an expectation that an 

institution lend in each census tract in its assessment area(s), and 

might lead to misinterpretation of the data.

    Based on these considerations, under the final rule, the agencies, 

rather than the institutions, will prepare disclosure statements in 

order to reduce burden on the industry. The agencies will prepare 

annually individual CRA Disclosure Statements for each reporting 

institution and aggregate disclosure statements for each MSA and the 

non-MSA portion of each state. The agencies will make both the 

individual and the aggregate disclosure statements available to the 

public at central depositories.

    The aggregate disclosure statements will indicate, for each 

geography, the number and amount of small business and small farm loans 

originated or purchased by all reporting institutions, except that the 

agencies may adjust the form of the disclosure if necessary, because of 

special circumstances, to protect the privacy of a borrower or the 

competitive position of an institution.

    The disclosure statements for the individual institutions will be 

prepared on a state-by-state basis and will contain for each county 

(and each assessment area smaller than a county) with a population of 

500,000 or fewer in which the institution reported a small business or 

small farm loan: (1) The number and amount of small business and small 

farm loans located in low-, moderate-, middle-, and upper-income census 

tracts or block numbering areas; (2) a list of each census tract or 

block numbering area in the county or assessment area grouped according 

to whether the geography is low-, moderate-, middle-, or upper income; 

(3) a list of each census tract or block numbering area in which the 

institution reported a small business or small farm loan; and (4) the 

number and amount of small business and small farm loans to businesses 

and farms with gross annual revenues of $1 million or less. For each 

county (and each assessment area smaller than a county) with a 

population greater than 500,000, the number and amount of small 

business and small farm loans will be provided for geographies grouped 

according to whether the median income of the geography relative to the 

area median income is less than 10 percent, 10 or more but less than 20 

percent, 20 or more but less than 30 percent, 30 or more but less than 

40 percent, 40 or more but less than 50 percent, 50 or more but less 

than 60 percent, 60 or more but less than 70 percent, 70 or more but 

less than 80 percent, 80 or more but less than 90 percent, 90 or more 

but less than 100 percent, 100 or more but less than 110 percent, 110 

or more but less than 120 percent, or 120 percent or more.

    The disclosure statements will also contain information on the 

number and amount of loans inside each and outside any assessment area 

of the institution and the institution's community development loan 

information. The disclosure statements will include affiliate lending 

if the institution reported the affiliate lending for consideration in 

its assessment.

    An institution itself no longer has to prepare information on small 

business and small farm lending or community development lending to 

place in its public file. Instead, each institution is required to put 

its CRA Disclosure Statement in its public file within three days of 

receipt of the statement from its regulator.

    List of geographies in assessment area and map of each assessment 

area. The 1994 proposal also would have required each institution to 

report (and include in its public file) a list of the geographies the 

institution considers to be within its assessment area and a map of 

each assessment area showing its geographies. Several industry comments 

suggested that this requirement was overly burdensome and that either a 

map or a list of the geographies in the assessment area(s) be reported 

but not both. Under the final rule, institutions would only report the 

list of geographies in each assessment area, and small institutions or 

institutions that were small during the prior calendar year would not 

have to report at all. In addition, the agencies have changed the 

reporting date to March 1 to provide a uniform date for reporting of 

information required under the final rule.

    All institutions would still have to include a map of each 

assessment area in the public file because the agencies believe a list 

of census tract numbers is likely not to be useful to many members of 

the public. To reduce burden, the final rule clarifies that the map 

itself need not show the geographies. The geographies may be identified 

on the map; alternatively, if the institution provides a separate list 

of the geographies contained in the area, the map may need to show only 

the boundaries of the area.

Public File

    Other aspects of the public file requirements have also been 

amended to provide more clarity and to respond to the criticism that 

the requirements in the 1994 proposal were burdensome.

    List of branches, ATMs, and services. The 1994 proposal would have 

required the public file to include a list of the 

[[Page 22175]] institution's branches and ATMs, their street addresses, 

and geographies; a list of branches and ATMs opened or closed by the 

institution during the current and each of the prior two calendar 

years, their street addresses, and geographies; and a list of services 

offered at the institution's branches and ATMs. Many industry 

commenters stated that these requirements were extremely burdensome, 

particularly the list of services offered at the branches. Much of this 

information is central to the institution's performance under the 

service test, and the public should have access to it. The final rule 

therefore retains the requirement that the public file include a list 

of services offered at the branches as well as the requirement that the 

file include a list of the branches, their street addresses, and 

geographies and a list of branches opened and closed during the current 

and prior two calendar years.

    However, the final rule does not require institutions to list ATMs 

by street address or geography. Nor does the final rule require that 

institutions provide a list of ATMs that have been opened or closed in 

the current or prior two years. This change reduces burden on an 

institution in trying to keep the public file current because ATMs may 

be opened and closed more frequently than branches. This change is also 

consistent with other changes that clarify that the agencies do not 

consider ATMs as equivalent to branches in providing services to the 

community.

    Small business, small farm, consumer, and community development 

loan data. The 1994 proposal would have required institutions that were 

not small institutions (and small institutions that elected to be 

evaluated under the lending, investment, and service tests) to include 

data collected or reported to the agencies for each of the prior two 

calendar years in their public file. The 1994 proposal would not have 

required public disclosure of data if it might reasonably be expected 

to disclose the identity of the borrower because of the small number of 

loans made in particular geographies or to particular groups of 

borrowers.

    Institutions will no longer have to compile information on small 

business, small farm, and community development loans for inclusion in 

their public files. As described earlier, the information regarding 

these loans that continues to be relevant under the final rule will be 

contained in the institution's CRA Disclosure Statement prepared by the 

agencies.

    Institutions that elect to have any portion of their consumer 

lending portfolios considered under the lending test will be required 

to provide in the public file information on the number and amount of 

consumer loans to

low-, moderate-, middle- and upper-income borrowers and census tracts, 

as well as information on the number and amount of consumer loans 

located both inside and outside of the institution's assessment area.

    The final rule also removes the exception to providing data in the 

public file that might reasonably be expected to disclose the identity 

of the borrower. Because of changes to data disclosure in the final 

rule, the agencies believe that a privacy exception is not necessary 

for the individual CRA Disclosure Statements. As described earlier, the 

agencies will take privacy concerns into account in preparing aggregate 

disclosure statements.

    Inclusion of comments received. The 1994 proposal would have 

required an institution to include in the public file all signed, 

written comments that it received from the public for the past two 

years. A few industry commenters did not perceive a need to keep 

correspondence related to complaints that have been satisfactorily 

resolved. The agencies have not made a change in response to these 

comments because, as discussed earlier, satisfactorily resolved 

comments are relevant to assessment of the institution's performance. 

The final rule removes the requirement that written comments be signed 

in order to be included in the public file, because all written 

comments should be considered even if the commenter wishes to remain 

anonymous. Of course, the response appropriate to a comment may well 

vary depending on whether the commenter has provided his or her name.

    Loan-to-deposit ratio for small institutions. The 1994 proposal 

would have required small institutions to include in the public file 

their loan-to-deposit ratios computed at the end of the most recent 

calendar year. Many small institutions requested that the public file 

requirement for loan-to-deposit ratio information be expanded to 

include loan-to-deposit ratios for each quarter, or alternatively, that 

an annual average loan-to-deposit ratio be placed in the file in order 

to better convey seasonal fluctuations in lending to the public. In 

accordance with the comments, the final rule requires a small 

institution to place annually in the public file the loan-to-deposit 

ratio at the end of each quarter of the prior calendar year.

    Public file location and number of copies. The 1994 proposal would 

have required that institutions maintain a complete copy of the public 

file at the home office. At least one branch office in each assessment 

area would have been required to have the HMDA Disclosure Statement and 

any materials from the public file relating to that assessment area 

available to the public. In addition, if a request for the public file 

was made at a branch office that did not maintain the file, the 

institution would have been required to make a complete copy of the 

file for that assessment area available for review at the branch within 

five days at no cost. An institution could have imposed reasonable 

copying and mailing charges if a member of the public requested copies 

of information in the file.

    Industry commenters maintained that the requirement to keep 

multiple copies of the public file was extremely burdensome, 

particularly given the large amount of information in the file. These 

commenters suggested that only one public file should be required.

    Under the final rule, an institution need maintain only one copy of 

its public file in each state in which it has its main office or a 

branch. The final rule provides that each institution shall make 

available to the public for inspection upon request and at no cost the 

information in the file at the main office and, if the institution is 

an interstate institution, at one branch office in each state. At each 

branch, an institution shall provide its public evaluation and a list 

of services provided at the branch. The institution shall also make all 

information in the public file relating to the assessment area in which 

the branch is located available for review at the branch within five 

calendar days of a request to review the file. These changes reduce the 

burden associated with the maintenance of public files at a branch in 

each assessment area while making it easier for the public to access 

the file at any branch. They also reflect the statutory provisions of 

the IBEA requiring separate written evaluations for each state in which 

an interstate institution operates.

    Additional clarifications. Some commenters requested the agencies 

to specify a date on which the public file information should be 

updated. The final rule provides that the public file be updated as of 

April 1 of each year unless the rule specifies another time for a 

particular element, such as the CRA Disclosure Statement. The final 

rule also clarifies that contents of the public file can be 

supplemented with any other information the institution deems 

appropriate. The final rule further clarifies that lending data 

contained in the public file relate to lending not only by the 

institution, but [[Page 22176]] also its affiliates, if the lending by 

affiliates is considered in the assessment of the institution.

Transition

    The 1994 proposal would have established a transition period from 

July 1, 1995, to July 1, 1996. Institutions subject to data collection 

and reporting requirements would have been required to begin collecting 

home mortgage, small business, and consumer loan data on July 1, 1995. 

Assessments under the proposed standards would have begun July 1, 1996. 

However, small institutions would have had the opportunity to be 

examined, at their option, under the small institution assessment 

method anytime after July 1, 1995. Anytime on or after July 1, 1995, an 

institution could have elected to submit for approval a strategic plan, 

and examinations under approved strategic plans would have begun July 

1, 1996.

    Many industry commenters requested that the transition period be 

lengthened to provide institutions with more time to develop procedures 

for satisfying the data collection requirements. Also, some of these 

commenters recommended against implementing the data collection 

requirements on July 1, because they believed that data collected for a 

half year would not be useful. Moreover, some industry commenters asked 

that data collection begin on January 1, to fall in line with other 

materials that are maintained on a calendar-year basis.

    In light of these comments and the fact that the implementation 

dates set forth in the 1994 proposal reflected anticipated publication 

of the final rule in January 1995, the data collection requirements set 

forth in the final rule will become effective January 1, 1996. The 

reporting requirements will become effective January 1, 1997. 

Evaluations under the lending, investment, service, and community 

development tests will begin July 1, 1997, in order to allow the 

agencies to use the newly reported data. However, evaluations under the 

small bank performance standards, which do not utilize new data, will 

begin January 1, 1996. In addition, beginning January 1, 1996, any 

institution may submit a strategic plan for approval or elect to be 

examined under the revised performance tests, if the institution 

provides the necessary data.

    An institution that elects evaluation under the lending, 

investment, and service tests before July 1, 1997, must provide, in 

machine readable form, data on small business and small farm loans and 

community development loans for the twelve month period preceding the 

examination. The institution must also provide, in machine readable 

form, the location of home mortgage loans located outside MSAs in which 

the institution has an office (or outside any MSA) for that period. If 

the institution elects evaluation of any category of consumer loans, 

the institution must also provide consumer loan data, in machine 

readable form, for that category for that period. An institution that 

seeks evaluation under the community development test must apply for 

designation as a wholesale or limited purpose bank three months prior 

to its examination and must provide data on community development loans 

for the twelve months prior to the examination. All institutions 

evaluated under the revised tests and standards or under an approved 

strategic plan before July 1, 1997, must delineate their assessment 

areas in accordance with the provisions of the final rule.

CRA Notice

    The 1994 proposal would have made minor changes to the notice 

requirements set forth in the 1993 proposal. The term ``head office'' 

was changed to ``main office'' for clarity. Within the notice, the 

statement of what is included in the CRA performance file would have 

been expanded to describe more accurately the contents of the file. The 

final rule makes additional changes to reflect changes in the public 

file provisions.

Multiple Assessment Areas

    The 1994 proposal did not address how institutions with multiple 

assessment areas would be examined or how performance in different 

assessment areas would affect the overall rating. The agencies received 

comments expressing a broad range of opinions regarding the examination 

treatment and assessment of institutions with multiple assessment 

areas. Several community group commenters stated that ``sampling'' 

among assessment areas was unacceptable, while an industry organization 

suggested an elaborate sampling procedure. Other commenters proposed 

that certain assessment area characteristics, such as the percentage of 

the institution's deposits or assets in the assessment area, should 

determine the weight that performance in that assessment area should 

have on the overall rating of the institution. Other commenters were 

concerned that such proposals could mean that rural assessment areas 

would not be given appropriate consideration in the examination 

process.

    The agencies continue to believe that the examination treatment of 

multiple assessment areas is best left for examination procedures, 

rather than stated in regulatory text. Whether an institution has one 

assessment area or several, the examiner must have an adequate factual 

basis on which to assess an institution's record of performance, and 

the overall rating must be fair and appropriate. These objectives do 

not necessarily require that an agency examine an institution's 

performance in every assessment area in the same way or that the rule 

state how performance in different assessment areas is aggregated. Just 

as a single mathematical calculation cannot determine performance in an 

assessment area, so the appropriate treatment of multiple assessment 

areas cannot be reduced to a formula.

    The agencies note that the IBEA amended the provisions of the CRA 

regarding written evaluations, and the examination procedures will be 

consistent with those requirements.

Written Evaluations

    Although the 1994 proposal did not directly address the content of 

the written performance evaluations required by the CRA statute, some 

commenters did. These commenters focused on whether the agencies would 

disclose an institution's ratings on the lending, investment, and 

service tests to the institution and to the public.

    The agencies jointly will issue guidelines for the contents and 

disclosure of written evaluations prepared under the final rule, and 

these guidelines will implement the IBEA amendments regarding written 

evaluations. To address the issue raised in the comments, the agencies 

envision that these guidelines will provide that an institution's 

ratings on the different tests in the rule be disclosed both to the 

institution and, as part of the public section of the written 

evaluation, to the public. A guiding principle of the CRA reform effort 

has been to clarify for all concerned the basis for an institution's 

rating, and the disclosure of ratings will provide essential 

information regarding the assessment of an institution's performance. 

Contrary to the claim raised in some comments, neither the use of five 

ratings, nor the disclosure of those ratings to the public, conflicts 

with the statutory mandate that the agencies use four ratings in 

assessing the overall performance of an institution.

Appeals

    Many commenters requested that the agencies establish an 

interagency appeals process. The final rule does not adopt this 

suggestion. Each agency has a process under which an institution 

[[Page 22177]] can appeal its CRA rating. The agencies have recently 

reviewed and modified, as necessary, their appeals processes pursuant 

to the Community Development and Regulatory Improvement Act of 1994. In 

light of the recent review, the agencies do not believe that it is 

necessary to adopt an interagency appeals process in the final rule.

Additional Interagency Initiatives

    In addition to this rulemaking, the agencies will work together to 

improve training for examiners, to increase interagency efforts to 

apply standards consistently and reliably, and to minimize unnecessary 

compliance burden. These efforts will focus on producing a CRA 

assessment process that imposes fewer burdens on institutions yet 

yields better results for the local communities in which they are 

chartered to do business.

    The agencies have also agreed to conduct a full review of the final 

rule in the year 2002, five years after the rule is fully implemented. 

This review will be conducted to determine whether the rule has been 

effective in achieving the goals of the final rule, including 

emphasizing performance rather than process, promoting consistency in 

evaluations, and eliminating unnecessary burden. Any regulatory changes 

that are determined to be necessary to improve the rule's effectiveness 

will be made at that time.

Paperwork Reduction Act

    OCC: The collections of information contained in this final rule 

have been reviewed and approved by the Office of Management and Budget 

in accordance with the requirements of the Paperwork Reduction Act of 

1980 (44 U.S.C. 3504(h)) under control number 1557-0160.

    The estimated annual burden per respondent varies, depending on 

individual circumstances, from 2 hours for a small bank required to 

perform only recordkeeping, to 280 hours for a large bank required to 

perform all elements in part 25, with an estimated average burden of 

18.5 hours.

    The collections of information in this final rule are in 12 CFR 

25.25, 25.27, 25.29, 25.41, 25.42, and 25.43.

    Comments concerning the accuracy of this burden estimate and 

suggestions for reducing this burden should be directed to Legislative 

and Regulatory Activities Division, Attention: 1557-0160, Office of the 

Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219, 

and to the Office of Management and Budget, Paperwork Reduction Project 

(1557-0160), Washington, DC 20503.

    Board: In accordance with section 3507 of the Paperwork Reduction 

Act of 1980 (44 U.S.C. Ch. 35; 5 CFR 1320.13), the proposed information 

collection was reviewed by the Board under the authority delegated to 

the Board by the Office of Management and Budget after consideration of 

the comments received during the public comment period.

    The collections of information in this rule are in 12 CFR 228.25, 

228.27, 228.41, 228.42, and 228.43. This information is required to 

evidence the efforts of State member banks in helping to meet the 

credit needs of their entire communities, including low- and moderate-

income areas. This information will be used to assess State member bank 

performance in satisfying the credit needs of their communities and in 

evaluating certain applications.

    The estimated annual burden per respondent/recordkeeper varies from 

2 to 280 hours, depending on individual circumstances, with an 

estimated average of 17 hours. There will be an estimated 969 

recordkeepers, averaging 16 hours. Among those will be an estimated 274 

respondents, responsible for an additional average of 4 hours of 

reporting burden. These estimates include a prediction that five 

percent of respondents/recordkeepers will keep or submit optional data.

    Comments concerning the accuracy of this burden estimate and 

suggestions for reducing this burden should be directed to Secretary, 

Board of Governors of the Federal Reserve System, 20th and C Streets, 

NW., Washington, DC 20551; and to the Office of Management and Budget, 

Paperwork Reduction Project (7100-0247), Washington, DC 20503.

    FDIC: The collections of information contained in this final rule 

have been reviewed and approved by the Office of Management and Budget 

in accordance with the requirements of the Paperwork Reduction Act of 

1980 (44 U.S.C. 3504(h)) under control number 3064-0092.

    The estimated annual burden per respondent varies, depending on 

individual circumstances, from 2 hours for a small bank required to 

perform only recordkeeping, to 280 hours for a large bank required to 

perform all elements in part 345, with an estimated average burden of 

12 hours.

    The collections of information in this final rule are in 12 CFR 

345.25, 345.27, 345.29, 345.41, 345.42, and 345.43.

    Comments concerning the accuracy of this burden estimate and 

suggestions for reducing this burden should be directed to the Office 

of Management and Budget, Paperwork Reduction Project (3604-0092), 

Washington, DC 20503, with copies of such comments to be sent to Steven 

F. Hanft, Office of the Executive Secretary, room F-453, Federal 

Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 

20429.

    OTS: The collections of information contained in this final rule 

have been reviewed and approved by the Office of Management and Budget 

in accordance with the requirements of the Paperwork Reduction Act of 

1980 (44 U.S.C. 3504(h)) under control number 1550-0012.

    The estimated annual burden per respondent varies, depending on 

individual circumstances, from 2 hours for a small savings association 

required to perform only recordkeeping, to 214 hours for a large 

savings association required to perform all elements in part 563e, with 

an estimated average burden of 16 hours.

    The collections of information in this final rule are in 12 CFR 

563e.25, 563e.27, 563e.29, 563e.41, 563e.42, and 563e.43.

    Comments concerning the accuracy of this burden estimate and 

suggestions for reducing this burden should be directed to the Office 

of Management and Budget, Paperwork Reduction Project (1550-0012), 

Washington, DC 20503, with copies to the Office of Thrift Supervision, 

1700 G Street, NW., Washington, DC 20552.

Regulatory Flexibility Act

    The agencies concluded that the 1994 proposal, if adopted as a 

final rule, would not have a significant economic impact on a 

substantial number of small banks and thrifts and invited comment on 

this determination. In response to comments received, the agencies have 

conducted an analysis under The Regulatory Flexibility Act (5 U.S.C. 

601-612, the ``Act'').

    The Act requires an agency to take certain considerations into 

account when a rule will have a significant economic impact on a 

substantial number of small entities. Two of the three requirements of 

a final regulatory flexibility analysis (5 U.S.C. 604)--(1) a succinct 

statement of the need for and the objectives of the rule, and (2) a 

summary of the issues raised by the public comments, the agency's 

assessment of the issues, and a statement of the changes made in the 

final rule in response to the comments--are discussed earlier in the 

preamble. The third requirement is for a description of the 

alternatives the agency considered to the rule being adopted that were 

designed to minimize the effect on small entities subject to the rule 

and why, if applicable, they were rejected. [[Page 22178]] 

    The agencies have carefully considered the effects of the final 

rule on small entities and the alternatives available to mitigate its 

potential burdens. The final rule provides separate, less burdensome 

treatment for small institutions, which are defined as institutions 

with total assets of $250 million or less that are either independent 

or are affiliates of a holding company with banking and thrift assets 

of less than $1 billion. The rule contains a specific small institution 

performance evaluation that relies on simplified criteria, to account 

for the operational differences between large and small institutions. 

Small institutions are also not subject to the data collection and 

reporting provisions in the rule for large institutions.

    The agencies believe that the rule has minimized the burden on 

small institutions, while still enabling the agencies to fulfill their 

statutory mandate to examine the CRA record of these institutions. 

Although exempting small institutions from evaluation under the CRA 

would eliminate any possible burden imposed by the final rule, the CRA 

does not provide an exemption for small institutions.

    Some small institutions would continue to be subject to the same 

potential burdens imposed on large institutions if they were affiliates 

in a holding company with banking and thrift assets of more than $1 

billion. The agencies have rejected the alternative of eliminating the 

holding company limitation altogether in order to prevent holding 

companies from manipulating the asset size of their institutions to 

qualify for the small institution treatment.

    However, by raising the holding company asset limit from $250 

million in the 1994 proposal to $1 billion in the final rule, the 

agencies have sought to mitigate any unfairness and unnecessary burden 

resulting from the holding company limitation. The agencies selected a 

higher asset level for the holding company limitation in recognition 

that smaller holding companies may be unable to provide the necessary 

support for the CRA activities of their small institution subsidiaries. 

The agencies anticipate that larger holding companies under the final 

rule would be capable of supporting the CRA activities of their 

subsidiary small institutions.

Executive Order 12866

    OCC and OTS: The OCC and OTS have determined that this document is 

a significant regulatory action because of the legal and policy issues 

it raises. Because of the significance of the rule, the OCC and OTS 

will review its effectiveness in achieving the goals of the CRA prior 

to and in preparation for the full CRA regulatory review in the year 

2002, discussed earlier.

Unfunded Mandates Reform Act of 1995

    OCC and OTS: Section 202 of the Unfunded Mandates Reform Act of 

1995, signed into law on March 22, 1995, provides that before 

promulgating certain rulemakings, covered agencies must prepare a 

written statement containing a cost/benefit analysis. Under section 

205, before promulgating any rule for which a written statement is 

required under section 202, covered agencies must identify and consider 

a reasonable number of regulatory alternatives, and from those 

alternatives, select the least costly, most cost-effective, or least 

burdensome one that achieves the objective of the rulemaking.

    In promulgating this rulemaking, the Federal financial supervisory 

agencies considered a wide range of alternatives described in notices 

of proposed rulemaking published in 1993 and 1994. In addition to the 

comments that the agencies received in response to the notices of 

proposed rulemaking, the agencies conducted a series of seven public 

hearings across the country in 1993, at which hundreds of witnesses 

commented and others provided written statements. Although the OCC and 

OTS have determined that they are not required to prepare a written 

statement under section 202 or to make a finding under section 205, 

they conclude that, on balance, this final rule provides the most cost-

effective and least burdensome alternative to achieve the objectives of 

the rule, consistent with statutory requirements.