For release on delivery
12:00 p.m. EDT
September 21, 2020
Strengthening the CRA to Meet the Challenges of Our Time
Remarks by
Lael Brainard
Member
Board of Governors of the Federal Reserve System
at the
Urban Institute
Washington, D.C.
(via webcast)
September 21, 2020
It is a pleasure to be back at the Urban Institute with Sarah Rosen Wartell to discuss the
Federal Reserve's efforts to strengthen the Community Reinvestment Act (CRA) regulation.1
Today the Federal Reserve Board unanimously approved an advance notice of proposed
rulemaking (ANPR) that would strengthen, clarify, and tailor the CRA regulation to better meet
the law's core purpose.2
The CRA's History and Purpose in Relation to Today's Challenges
The CRA was one of several landmark civil rights laws to address systemic inequities in
credit access.3 The CRA was intended to reinforce the other statutes in addressing redlining,
wherein banks declined to make loans or extend other financial services in neighborhoods of
largely Black and other minority households, in part based on government maps that literally
delimited these neighborhoods in red as high credit risks (figure 1). By enacting the CRA,
lawmakers aimed to reverse the disinvestment associated with years of government policies and
market actions that deprived lower-income and predominantly minority areas of credit and
investment.
Even with these critical laws, the legacy of discriminatory lending and systemic inequity
in credit access remains in evidence today. The typically minority neighborhoods demarcated in
red in the old color-coded maps tend to be characterized by worse economic performance and
1
I am grateful to Taz George of the Federal Reserve Bank of Chicago and Amanda Roberts, Joseph Firschein, and
Carrie Johnson of the Federal Reserve Board for their assistance in preparing this text. These remarks represent my
own views, which do not necessarily represent those of the Federal Reserve Board or the Federal Open Market
Committee.
2
See Federal Reserve Board, "Advance Notice of Proposed Rulemaking: the Community Reinvestment Act,"
(September 21, 2020), https://www.federalreserve.gov/aboutthefed/boardmeetings/files/cra-fr-notice-20200921.pdf.
3
The Equal Credit Opportunity Act and the Fair Housing Act are fair lending laws that are designed to combat
discrimination on prohibited bases such as race, and the Home Mortgage Disclosure Act is designed to bring
transparency to mortgage lending practices.
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opportunity even today.4 Beyond these specific neighborhoods, research and surveys indicate
that there are ongoing racial disparities in access to credit. As of 2019, small businesses with
Black ownership were only half as likely as those with White ownership to have obtained bank
financing in the previous five years (figure 2).5 In 2016, the "wealth gap [was] roughly the same
as in 1962, two years before the passage of the Civil Rights Act of 1964." And the gap in
homeownership rates between Black and White households remains significant today, even when
controlling for differences in income and education.6
Recent events have highlighted and exacerbated these challenges. When I last joined you
7
at the Urban Institute to discuss the CRA, we did not know the tremendous hardship and
heartache the COVID-19 pandemic would cause, especially for groups with thin financial
buffers, including many low- and moderate-income (LMI) neighborhoods, Black and Latinx
workers, and workers and entrepreneurs affiliated with small businesses.8 In parallel, the tragic
4
See, e.g., Daniel Aaronson, Daniel Hartley, and Bhashkar Mazumder, "The Effects of the 1930s HOLC
'Redlining' Map," Working Paper No. 2017-12 (Chicago: Federal Reserve Bank of Chicago, revised August 2020),
https://www.chicagofed.org/publications/working-papers/2017/wp2017-12.
5
Specifically, 46 percent of firms with non-Hispanic White ownership have obtained bank funds in the past five
years, compared to 23 percent of firms with non-Hispanic Black ownership. See Federal Reserve System, Federal
Reserve Small Business Credit Survey: 2020 Report on Employer Firms (2020), p. 3,
https://www.fedsmallbusiness.org/medialibrary/FedSmallBusiness/files/2020/2020-sbcs-employer-firms-report.
6
See Dionissi Aliprantis and Daniel Carroll, "What Is Behind the Persistence of the Racial Wealth Gap?" Economic
Commentary, no 2019-03, February 28, 2019,
https://www.clevelandfed.org/newsroom-andevents/publications/economic-commentary/2019-economic-commentaries/ec-201903-what-is-behind-thepersistence-of-the-racial-wealth-gap.aspx. See also Jung Hyun Choi, "Breaking Down the Black-White
Homeownership Gap," Urban Wire: Housing and Housing Finance (blog), Urban Institute, February 21, 2020,
https://www.urban.org/urban-wire/breaking-down-black-white-homeownership-gap, which finds that the
homeownership rate among White households is 30 percentage points higher than for Black households, and a large
gap remains after controlling for differences in income levels.
7
See Lael Brainard, "Strengthening the Community Reinvestment Act by Staying True to Its Core Purpose" (speech
at the Urban Institute, January 8, 2020), https://www.federalreserve.gov/newsevents/speech/brainard20200108a.htm.
8
The Census Household Pulse Survey indicates that 23 percent of non-Hispanic Black renters and 20 percent of
Hispanic renters reported they were not caught up on their rent in August 2020, compared to 11 percent of
nonHispanic White renters. The Federal Reserve Board's Survey of Household Economics and Decisionmaking
(SHED) indicates that one-fourth of workers in low-income families, with incomes below $40,000, who experienced
a layoff said they had returned to work for the same employer by July, compared to 32 percent of middle-income
and 39 percent of high-income workers, with incomes of between $40,000 and $100,000, and greater than $100,000,
respectively. See also Federal Reserve System, FedListens: Perspectives from the Public, (Federal Reserve System,
June 2020), https://www.federalreserve.gov/publications/files/fedlistens-report-20200612.pdf; Claire Kramer Mills
- 3 -
death of George Floyd has ignited a national discussion about racial injustice and a renewed
commitment to take action to address systemic inequity.9
The CRA is a seminal statute that remains as important as ever as the nation confronts
challenges associated with racial equity and the COVID-19 pandemic. We must ensure that the
CRA is a strong and effective tool to address ongoing systemic inequities in access to credit and
financial services for LMI and minority individuals and communities.
By conferring an affirmative obligation on banks to help meet the credit needs in all of
the neighborhoods they serve, the CRA prompts banks to be not only more active lenders in LMI
areas but also important participants in broader efforts to revitalize communities across the
country. Research shows the CRA has positive effects on access to capital and financial services
for communities, including home mortgages, small business loans, and services offered at local
bank branches.10 Reforms to the CRA should strengthen the engagement between banks and
their communities and advance the law's core purpose of addressing disinvestment and unequal
access to credit.
The ANPR that the Federal Reserve released today incorporates ideas from public
comments on past rulemaking notices, research, and our discussions with the other banking
and Jessica Battisto, "Double Jeopardy: COVID-19's Concentrated Health and Wealth Effects in Black
Communities" (New York: Federal Reserve Bank of New York, August 2020),
https://www.newyorkfed.org/medialibrary/media/smallbusiness/DoubleJeopardy_COVID19andBlackOwnedBusine
sses; and Nishesh Chalise et al., Perspectives from Main Street: The Impact of COVID-19 on Low- to
ModerateIncome Communities and the Entities Serving Them (Atlanta: Federal Reserve Bank of Atlanta, August 2020),
https://www.frbatlanta.org/-/media/documents/community-development/publications/national-covid-19survey/2020/08/the-impact-of-covid-19-on-low-to-moderate-income-communities.pdf.
9
See Raphael Bostic, "A Moral and Economic Imperative to End Racism" Federal Reserve Bank of Atlanta
(website), June 12, 2020,
https://www.frbatlanta.org/about/feature/2020/06/12/bostic-a-moral-and-economicimperative-to-end-racism.
10
See Raphael W. Bostic and Hyojung Lee, "Small Business Lending under the Community Reinvestment Act,"
Cityscape, 19, no. 2 (2017): 63-84. See also Hyojung Lee and Raphael W. Bostic, "Bank Adaptation to
Neighborhood Change: Mortgage Lending and the Community Reinvestment Act," Journal of Urban Economics
116 (March 2020); and Lei Ding and Carolina K. Reid, "The Community Reinvestment Act (CRA) and Bank
Branching Patterns," Housing Policy Debate 30, no. 1 (November 2019): 27-45.
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agencies. Our proposal also reflects extensive outreach through the 29 CRA roundtables we held
across the country with community and industry leaders and community members. I traveled to
Colorado to participate in the first roundtable and to hear from women and minority small
business owners about the loans that are enabling their businesses to thrive and the bankers who
are providing credit and community development activities in their communities.11 I made
similar visits to communities in areas ranging from El Paso's colonias to Kansas City, from Pine
Ridge to Milwaukee, from the Mississippi Delta to Ferguson, Missouri, and from Hazard,
Kentucky, to Rochester, New York. Despite wide variations, in all of these places, I met people
working to strengthen their communities.
To ensure its continued effectiveness in supporting these efforts, the CRA regulation
must evolve along with the landscape of banking and community development. To that end, the
Board's ANPR seeks to advance the CRA's core purpose of addressing inequities in credit
access and ensuring an inclusive financial services industry. In addition, the ANPR seeks to
provide more certainty and consistency, tailor expectations to local conditions and bank business
models, and minimize burden. Finally, we intend for the feedback on the ANPR to provide a
foundation for the banking agencies to converge on a consistent regulatory approach that has
broad support among stakeholders. Guided by these broad goals, I will discuss the key changes
we are proposing.
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Advancing the Core Purpose of the CRA
Promoting Financial Inclusion
We seek to modernize the CRA in a way that significantly expands financial inclusion.
By being inclusive in their lending and investing, banks help their local communities to thrive,
which in turn benefits their core business. The recognition of this mutually beneficial
relationship between banks and their local communities is one of the core strengths of the CRA.
To strengthen the CRA's role in financial inclusion, the ANPR proposes to expand and
clarify CRA-eligible activities that support minority depository institutions (MDIs), community
development financial institutions (CDFIs), women-owned financial institutions, and low-
income credit unions. Given the disproportionate impact of COVID-19 on communities of color,
it is important to support the institutions that have a mission to serve the families, entrepreneurs,
and homeowners in these communities. In May, Governor Miki Bowman and I heard from
leaders of Federal Reserve-regulated MDIs about how COVID had hit their communities and the
proactive efforts MDIs were taking to bolster their communities' resilience by extending credit
to existing and new customers, calling each borrower that applied for a Paycheck Protection
Program loan to help them navigate the process, and working with customers to modify and
defer payments on existing loans.12 The Board's proposal would clarify that banks can receive
credit for partnerships with MDIs and other mission-oriented institutions on a nationwide basis,
and that such activities would be considered as part of a potential pathway to an "outstanding"
rating. Furthermore, for regulated MDIs, investments in other MDIs and in their own institutions
could be considered as enhancing their CRA performance.
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Moreover, the ANPR proposes to designate certain areas, based on persistent inequities,
where banks could receive credit for community development activities that often lie beyond the
boundaries of a bank's branches. For instance, many of the places that I have visited, such as in
the colonias, the Mississippi Delta, Appalachia, and Indian Country, have few bank branches and
are located outside of branch-based assessment areas. Banks need to be confident about
receiving CRA credit to seek out activities and investments in these areas.
The ANPR raises a variety of additional ideas that could be significant for financial
inclusion. It proposes giving banks greater certainty that their community development activities
will be considered in broader statewide and regional areas, in addition to activities within their
local communities, so that banks could help address needs in "credit deserts" if they have the
capacity to do so. In considering economic development, the ANPR considers that loans to the
smallest businesses, smallest farms, and minority-owned small businesses might be considered
impactful and responsive to community needs. In addition, the ANPR proposes elevating the
focus on the availability of checking account and savings account products in serving LMI
communities.
Finally, in considering how the CRA's purpose and history relate to the nation's current
challenges, the Board seeks feedback on what other modifications and approaches would
strengthen the CRA regulation in addressing systemic inequities in credit access for minority
individuals and communities.
Meeting the Needs of LMI Individuals and Communities
It is important for the CRA to ensure that a wide range of LMI banking needs are met.
We heard from stakeholder feedback that both retail and community development activities are
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important in meeting LMI banking needs. Accordingly, we propose to assess large retail banks
using a separate Retail Test and a Community Development Test with separate financing and
services subtests (figure 3). Separate assessments of retail lending, retail services, community
development financing, and community development services will support robust bank
engagement with communities through a variety of channels.
Stakeholder feedback has highlighted that each of these areas is essential to LMI
communities. The standalone Retail Lending Test is important to stay true to the CRA's core
focus on providing credit in underserved communities. Retail lending is the channel through
which a family can get a mortgage to buy its first house and an entrepreneur can get a loan for a
small business. Retail services are the channel through which an LMI household might get
access to essential services from a local bank branch, such as a low-cost checking account.
Community development financing captures bank lending and investments that create and
maintain affordable housing, promote economic development, and revitalize and stabilize LMI
communities. Community development services include financial counseling for low-income
families and important volunteer activities undertaken by bank staff, such as serving on the board
of a local nonprofit.
Some of these activities lend themselves primarily to a qualitative review. For example,
the ANPR highlights essential banking services that are responsive to community needs, such as
customer support that is provided in multiple languages and flexible branch hours to
accommodate LMI customers' work schedules. Although we concluded that the value of
services to a local community does not lend itself easily to a monetary value metric, the ANPR
proposes introducing quantitative benchmarks where appropriate, such as indicators of whether
branch locations are maintained or increased in underserved areas.
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Addressing Changes in the Banking Industry
The ANPR proposes to modernize CRA assessment areas in recognition that reliance on
mobile and internet banking has increased in the 25 years since the CRA regulation was last
substantially revised. The ANPR still maintains a focus on branches, given their importance to
individuals and communities. It also proposes to tailor the facility-based assessment area
definition based on bank size.
For large banks that conduct a significant amount of lending and deposit-taking outside
of their facility-based assessment areas, the ANPR presents options for determining where banks
should be assessed outside of where their branches are located. Defining lending-based
assessment areas is one option, but the preliminary analysis of this approach provided in the
ANPR finds that banks' lending outside of their current assessment areas is widely dispersed and
often occurs in places that are already well served. Defining deposit-based assessment areas is
another option, but it would entail some additional data reporting burden, and we do not
currently have the data to analyze this option closely. For internet banks, which lend across a
broad area with few or no branch locations, a nationwide assessment area may advance the
CRA's goals more effectively than the current practice of assessing these banks solely where
they have a headquarters office.
Providing Certainty and Consistency, Minimizing Burden, and Tailoring Expectations
Providing Clarity, Consistency, and Transparency
The ANPR seeks to provide greater clarity and consistency through tailored performance
evaluations. Responding to calls for greater certainty regarding how banks are assessed and
rated, the ANPR introduces a metrics-based approach that is calibrated based on over 6,000
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written public CRA evaluations.13 Separating the Retail Test and the Community Development
Test provides greater scope to tailor the metrics to local market conditions, which often differ for
retail lending and community development financing. This approach would create clear
quantitative thresholds for the level of retail lending and community development financing that
is needed to achieve a "satisfactory" CRA rating.
For the Retail Lending Subtest, which would apply to large retail banks and any small
banks that choose to opt in, banks could earn a presumption of a "satisfactory" performance
conclusion in an assessment area by reaching clear thresholds of lending to LMI borrowers and
neighborhoods in each of their major product lines. The thresholds would be tailored to local
market conditions and adjust automatically to reflect changes over the business cycle. They
would be based on local data that reflect the credit needs and opportunities among LMI
individuals, communities, small businesses, and small farms and on market data that reflect the
level of LMI lending in the area by all lenders. Federal Reserve analysis confirms there are large
differences in LMI lending opportunities among assessment areas, which illustrates the
importance of tailoring the retail lending thresholds to the needs of the local community (figure
4). The ANPR also considers using the same metrics relative to performance ranges to produce a
recommended Retail Lending Subtest conclusion of "outstanding," "satisfactory," "needs to
improve," or "substantial noncompliance." We encourage commenters to make use of the CRA
Analytics Data Tables that we published in March in order to evaluate the presumption threshold
options and performance ranges and provide feedback.
For the Community Development Financing Subtest, the Board is proposing to measure a
large retail bank's community development loans and investments relative to its deposits in each
assessment area. The thresholds for the Community Development Financing Subtest would be
calibrated using local and national data. When we looked at past performance evaluations, we
found that community development financing varies widely across different assessment areas,
likely reflecting different levels of community development capacity and the unique needs and
challenges of different communities. For example, in San Diego, California, the total dollar
amount of banks' community financing activities relative to their deposits is three times higher
than in Little Rock, Arkansas (figure 5). In addition, metropolitan areas overall have a higher
level of community development financing relative to deposits than rural areas overall. For these
reasons, it is important to tailor the Community Development Financing Subtest using thresholds
that account for these differences and adjust automatically to changes over time.
To provide certainty and transparency, the retail lending and community development
financing thresholds would be made available in simple, regularly updated dashboards that banks
could use to compare their level of activity to the thresholds in each assessment area (figure 6).
For example, a dashboard for the Retail Lending Subtest could show the thresholds that a large
retail bank should reach for each of its major product lines to receive the presumption of
"satisfactory," including the percentage of loans to LMI borrowers and the percentage of loans to
LMI neighborhoods.
Tailoring Performance Evaluations to Bank Size and Business Model
The proposed separate subtests would also ensure expectations are tailored to the size and
business models of different banks. It is important for smaller banks to be able to remain under
the current more qualitative approach if they so choose. Accordingly, small retail banks could
continue to be evaluated under the current CRA framework, but they would have the option to
have their retail lending evaluated under the metrics-based Retail Lending Subtest. Small banks
could also elect to have their retail services and community development activities evaluated.
Wholesale and limited purpose banks would be evaluated only on their community
development activities. The ANPR solicits feedback on options for additional tailoring and
flexibility for these institutions, which do not lend themselves to evaluation under the same
metrics that would be applicable to large retail banks.
Minimizing Data Collection and Reporting Burden
The ANPR seeks comment on striking an appropriate balance between providing greater
certainty for how banks are assessed through the increased use of metrics and minimizing the
associated data collection and reporting burden. In an effort to reduce burden, the proposed
metrics would rely to the greatest extent possible on existing data collections and public data
sources, and the approach would exempt small banks from deposit and certain other data
collection requirements.
Large banks currently report community development loans at an aggregated level. A
bank may also share information with its examiner on its community development loans and
investments in a specific assessment area during a CRA exam. However, the bank does not
formally report data on these activities for each assessment area, nor are the data currently
available through other sources. Without reporting data more consistently to provide the basis
for comparison, it would be difficult to measure and evaluate a large bank's community
development performance in a more consistent and predictable way.
Clarify and Expand Eligible CRA Activities to Focus on Communities
The ANPR proposes updating and clarifying which community development activities
qualify in order to provide greater certainty to banks and communities about what counts. The
ANPR proposes to publish and regularly update an illustrative, but not necessarily exhaustive,
list of qualifying activities. To provide additional certainty, the Board also seeks feedback on a
preapproval process, so that banks can propose a community development activity to their
examiner to determine whether it will qualify before proceeding with the loan, investment, or
service activity. This additional certainty could help promote greater investment by banks while
retaining a focus on LMI communities.
In addition, the ANPR seeks feedback about clarifying the definitions of qualifying
activities and broadening certain definitions in targeted ways. For example, the Board is
considering defining CRA-eligible activities that create or preserve naturally occurring
affordable housing and is considering whether to broaden the set of volunteer activities that
would qualify in rural areas. The Board is also clarifying when a government or tribal plan is
required to qualify activities that revitalize and stabilize communities. This is especially
important in Indian Country, where we want to encourage banks to make impactful investments
that have the support of tribal governments and to increase certainty about how these activities
qualify for CRA credit.
Recognizing the Special Circumstances of Small Banks in Rural Areas
Stakeholder feedback emphasized that smaller retail banks play a vital role in many
underserved communities, such as in rural areas. Accordingly, the ANPR provides small banks
in rural areas operating in just a portion of a large county greater clarity and flexibility in
tailoring the facility-based assessment area definition. The ANPR proposes that a small bank
would not be required to expand the delineation of an assessment area to include parts of
counties where it does not have a physical presence and where it either engages in a de minimis
amount of lending or there is substantial competition from other institutions, except in limited
circumstances. In addition, the ANPR proposes to revise the definition of community
development services to include a wider range of volunteer activities to address the particular
needs of rural areas.
The Path Ahead
It has been 25 years since the last significant revision to the CRA regulation, so it is
important to get reform right. We are providing an extended 120-day comment period to allow
ample time for thoughtful feedback from a broad set of stakeholders. The input from
stakeholders thus far has been tremendously valuable, and we appreciate the care and concern
expressed in the many comment letters and other forms of input on this important regulation. In
the weeks and months ahead, we look forward to reviewing your comments and analyzing
options for greater impact, including changes to address the inequities and challenges faced by
minority communities and individuals. This feedback is critically important, and we are ready to
listen.
Stakeholders have expressed strong support for the agencies to work together to
modernize the CRA. By reflecting stakeholder views and providing a long period for public
comment, the ANPR is intended to build a foundation for the banking agencies to converge on a
consistent approach to strengthening the CRA that has broad support among stakeholders. With
your continued ideas and engagement, I am confident we can come together on a stronger,
transparent, and tailored approach to the CRA that will benefit LMI communities across the
country for years to come.
Strengthening the CRA to Meet the Challenges of Our Time
September 21, 2020
Lael Brainard
Board of Governors of the Federal Reserve System
Example of a historical redlining map
Figure 1. HOLC Map of Atlanta, 1938
Source: Robert K. Nelson, LaDale Winling, Richard Marciano, Nathan Connolly, et al., "Mapping Inequality," American Panorama, ed.,
https://dsl.richmond.edu/panorama/redlining/#loc=4/36.71/-96.93&text=intro.
Minority-owned small businesses less likely to access bank financing
Figure 2. Small Business Owners that Received Bank Funding in the Last Five Years
46%
34%
23%
Non-Hispanic White Non-Hispanic Black Hispanic
Source: Federal Reserve System 2019 Small Business Credit Survey, https://www.fedsmallbusiness.org/medialibrary/FedSmallBusiness/files/2020/2020-sbcs-employer-firms-report.
How to assess CRA performance for large retail banks
Figure 3. Evaluation Framework with Separate Retail and Community Development Tests
Retail Test Community Development Test
Retail Services
CD Services
Retail Lending Subtest
Subtest
CD Financing Subtest
Subtest
Retail Lending Metrics
Qualitative Review of CD Financing Metric
Qualitative Review
Delivery Systems and
Deposit Products
Demand for LMI loans varies widely across geographies
Figure 4. Examples of Retail Lending Thresholds Based on Local Data
56%
Adams County, CO
48% Seminole County, FL
31%
21%
Share of LMI families Share of mortgages to LMI borrowers
Community development activities vary widely across geographies
Figure 5. Community Development Loan & Investment Dollars-to-Deposit Ratios
Metropolitan vs. Two Example MSAs
NonMetropolitan Assessment Areas
3.0%
1.4%
1.1%
0.9%
Metropolitan Non-Metropolitan
Little Rock, AR San Diego, CA
Dashboard to increase certainty and transparency
Figure 6. Retail Lending Dashboard Example
ABC Bank
Assessment Area: Any Town, USA
Product: Home Mortgage Lending
Evaluation Period: 2015 to 2018
Current Evaluation Period
Geographic Distribution
Borrower Distribution Metric
Metric
Current Threshold
26% 36%
39%
34%
Performance-toDate
Difference
+3%
+8%
PRESUMPTION:
SATISFACTORY