For release on delivery
5:00 p.m. EST (2:00 p.m. PST)
November 10, 2020
Modernizing and Strengthening CRA Regulations:
A Conversation with the National Congress of American Indians
Remarks by
Lael Brainard
Member
Board of Governors of the Federal Reserve System
to the
National Congress of American Indians
77th Annual Convention & Marketplace
(via webcast)
November 10, 2020
Good afternoon and thank you to President Fawn Sharp and Kevin Allis of the
National Congress of American Indians (NCAI) for inviting me to join your discussion.1
As the oldest and largest American Indian and Alaska Native organization serving the
broad interests of tribal governments and communities, your voice is vitally important on
economic issues affecting Indian Country.2 We appreciate your engagement on our work
to reform the Community Reinvestment Act (CRA) regulations to better address credit
and investment needs in Indian Country.
Two years ago, I had the pleasure of visiting with the Thunder Valley Community
Development Corporation on the Pine Ridge Reservation of South Dakota. We toured
the major housing, small business, and community development mixed-use project,
which was under construction. Despite the importance of the Thunder Valley project to
the community, banks were not among the funders listed for this important project. Their
absence underscores the broader challenge underserved communities such as the Pine
Ridge Reservation face when they are included in only one bank's CRA assessment
area. I thought about this challenge frequently as we worked on the Board's proposal to
reform CRA.
We recognize the importance of engaging with Indian Country to inform research
and policymaking at the Federal Reserve. The Center for Indian Country Development
(CICD) at the Federal Reserve Bank of Minneapolis is a key resource across the Federal
Reserve System in fulfilling our responsibility to Indian Country.3 The CICD is led by
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Casey Lozar, who is an enrolled member of the Confederated Salish and Kootenai Tribes,
and the CICD's Native staff have deep expertise in community and economic
development in Indian Country. I greatly value the research and thought leadership of
the CICD, as well as their input on policy decisions regarding Indian Country and work
to deepen our engagement with tribal communities.
The COVID-19 Pandemic
The COVID-19 pandemic is bringing hardship to all our communities, and the
health of tribal communities is suffering disproportionately. Hospitalization rates for
Native Americans are 4.3 times the rate for Whites, adjusting for age, according to the
Centers for Disease Control and Prevention.4 We are thinking about those in Indian
Country who have lost loved ones and those who are struggling with the virus.
The COVID-19 pandemic is also causing significant economic hardship in Indian
Country, affecting the many small businesses that are the backbone of tribal economies.5
Indian Country faces significant challenges associated with "various data collection and
reporting issues, such as small sample size or large margins of error," which are
sometimes referred to by the term Asterisk Nation.6 This lack of data makes it
challenging to evaluate how economic developments are impacting Indian Country. To
assess the real-time economic impacts of COVID-19 on Indian Country's economic
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experience in the COVID-19 conversation, the Federal Reserve Bank of Minneapolis
conducted a series of pulse surveys with tribal governments, tribally owned enterprises,
and tribal member businesses, as well as hosted meetings with tribal leaders and national
organizations.7 The surveys found that two-thirds of businesses in Indian Country saw a
revenue reduction of at least 20 percent, and one in six businesses reported losing all of
their revenue due to the pandemic.8 Tribal governments have experienced similar
revenue declines, with over half of tribal government respondents anticipating continued
declines of more than 20 percent over the next six months. Despite this, over 60 percent
of tribal small businesses reported they had not laid off or furloughed workers.9
Maintaining these employee/employer relationships will be critical for Indian Country
economic recovery, but cash-strapped small businesses are finding it increasingly
challenging to maintain payrolls as the pandemic continues. Only 20 percent of tribal
small businesses reported they had enough cash on hand to maintain operations beyond a
three-month period.10
Emergency lending programs aimed at providing pandemic relief, such as the
Paycheck Protection Program (PPP) and our Main Street Lending Program, provide
critical support to small businesses, so it was extremely important to make sure they were
7
See Donna Feir, Chris James, Casey Lozar, and Ryan Nunn, "Indian Country Small Businesses Face
Strong Headwinds in COVID-19 Recovery," September 8, 2020,
https://www.minneapolisfed.org/article/2020/indian-country-small-businesses-face-strong-headwinds-incovid-19-recovery; Casey Lozar, Donna Feir, and James Robert Columbe, "COVID-19: A Deep Economic
Crisis in Indian Country," May 13, 2020,
https://www.minneapolisfed.org/article/2020/covid-19-a-deepeconomic-crisis-in-indian-country; and Casey Lozar, Donna Feir, and James Robert Columbe, "COVID-19
and Indian Country: Early Snapshot Reveals Disproportionate Economic Exposure and Uncertainty," April
10, 2020,
https://www.minneapolisfed.org/article/2020/covid-19-and-indian-country-early-snapshotreveals-disproportionate-economic-exposure-and-uncertainty.
8
Feir, "Indian Country Small Businesses Face Strong Headwinds."
9
Feir, "Indian Country Small Businesses Face Strong Headwinds."
10
Feir, "Indian Country Small Businesses Face Strong Headwinds."
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accessible to tribal enterprises. Valuable feedback from tribal leaders and lending
institutions led us to change requirements in the Main Street program to allow tribally
owned enterprises to participate in Main Street lending while still continuing to provide
distributions back to their tribal governments. Similarly, we expanded the PPP Liquidity
Facility to include non-depository community development financial institutions (CDFIs)
because of their ability to reach minority small business owners, including those in Indian
Country.
Financial Access
The COVID-19 pandemic has exacerbated an already challenging landscape for
financial access in Indian Country, where Native minority depository institutions (MDIs),
credit unions, and CDFIs are making exceptional efforts to serve Native Americans on
and off tribal lands.11 In 2018, the Board worked with the CICD to convene Native
American financial institutions on the Flathead Indian Reservation in Montana and
discuss how best to collaborate to maximize the impact for their communities. We
remain committed to helping these vital financial institutions provide critical financial
services in their communities.
Despite the significant efforts of Native banks, CDFIs, and credit unions, for
many Native Americans, banking and credit access remain challenging. Over 16 percent
of American Indians and Alaska Natives were unbanked in 2019, and survey research
finds that only one in three Native American respondents have a strong or very strong
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relationship with lenders.12 One reason for these low levels of banking relationships is a
lack of proximate bank branches. Majority-Native American counties, on average, have
only 3 bank branches, which is below the 9-branch average in nonmetro counties, and
well below the 26-branch overall average for all counties.13 This is exacerbated by low
rates of broadband and cellular access in Indian Country, where it is reported that 28
percent of tribal lands and 48 percent of rural tribal lands are not covered by broadband.14
Native small businesses struggle to access bank capital even during normal
economic times. Native-owned small businesses also struggle to access CRA-motivated
loans. From 2014 to 2018, the total dollar amount of CRA small business and small farm
lending per capita in majority-Native American or Alaska Native census tracts was less
than half of what it was in majority-non-Hispanic White areas.15 These data make it clear
that we still have a long way to go in improving access to banking services and capital in
Indian Country.
CRA Reform
Let me spend a few minutes talking about how CRA reform might help address
these systemic economic inequities in Indian Country. Over 45 percent of the American
Indian and Alaskan Native population live in low- and moderate-income (LMI) or
12
Federal Deposit Insurance Corporation (FDIC), "How America Banks: Household Use of Banking and
Financial Services," 2019 FDIC Survey (Washington: FDIC, October 2020),
https://www.fdic.gov/analysis/household-survey/2019report.pdf; and Feir, "Indian Country Small
Businesses Face Strong Headwinds."
13
Information calculated using Summary of Deposits (SoD) 2020. Note that not all counties, especially
some with high Native American populations, do not exist in the SoD dataset.
14
Federal Communications Commission (FCC), 2020 Broadband Deployment Report (Washington: FCC,
April 24, 2020), https://docs.fcc.gov/public/attachments/FCC-20-50A1.pdf.
15
Federal Reserve Board staff analyzed annually reported CRA Small Business and Small Farm loan data
submitted by banks at the tract level and combined it with demographic data from the American
Community Survey 2018 5-Year Survey.
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distressed or underserved census tracts.16 Yet, feedback from stakeholders like
yourselves indicates that many of these locations fall outside of where banks currently
serve.
In September, the Federal Reserve Board unanimously voted to approve an
Advance Notice of Proposed Rulemaking (ANPR) on the CRA. The ANPR proposes
reforming CRA regulations based on ideas advanced by a broad set of stakeholders,
including the NCAI. I hope you will continue to engage throughout the rest of this
process. It has been 25 years since the banking agencies last substantially reformed
CRA, so it is important that we get it done right.
The Board's ANPR seeks to advance the law's core purpose of addressing
unequal access to credit for LMI and minority communities and disinvestment in
underserved communities. A modernized CRA should improve credit access and the
availability of community development financing. This includes strengthening the
regulations to ensure that a wide range of banking needs are being met.
Another key objective the Federal Reserve has focused on in the ANPR is
providing greater certainty, tailoring regulations based on bank size and business model
and local conditions, and minimizing burden. For example, the ANPR proposes using a
16
Federal Financial Institutions Examination Council Online Census Data System 2018 and U.S. Census
Bureau American Community Survey 2014-2018. A tract is designated as distressed if it is a
nonmetropolitan middle-income tract that meets one or more of the following triggers: (1) an
unemployment rate of at least 1.5 times the national average; (2) a poverty rate of 20 percent or more; or
(3) a population loss of 10 percent or more between the previous and most recent decennial census or a net
migration loss of 5 percent or more over the five-year period preceding the most recent census. A tract is
designated as underserved if it is a nonmetropolitan middle-income tract that meets criteria for population
size, density, and dispersion that indicate the area's population is sufficiently small, thin, and distant from a
population center that the tract is likely to have difficulty financing the fixed costs of meeting essential
community needs. A nonmetropolitan middle-income tract is defined as a tract with median family income
of more than 80 percent or less than or equal to 120 percent compared to a statewide nonmetropolitan area
median family income.
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complementary set of metrics to separately evaluate retail-lending activity (like mortgage
lending) and community development financing activity (like investing in affordable
rental housing). Looking at these activities separately helps to ensure that we are
comprehensively evaluating bank activity and that we are taking both retail and
community development activity into consideration.
Third, we also hope the ANPR will provide a foundation for a consistent approach
that has broad support among stakeholders. Stakeholders have expressed strong support
for the agencies to work together to modernize CRA. By reflecting stakeholders' views
and providing a long public comment period, we believe the ANPR provides the basis for
the agencies to establish a consistent approach that has broad support.
As we embark on CRA reform to strengthen the law's core purpose, we have a
unique opportunity to design a regulation that better addresses the needs of individuals
and communities in Indian Country. There are several proposals in the ANPR that I
would like to highlight that advance that goal.
First, we have specific proposals in the ANPR that would allow banks to receive
credit for eligible CRA activities in Indian Country, even when those activities are
outside of a bank's assessment area(s). For instance, the ANPR proposes providing CRA
credit for retail lending activity like mortgage lending or small business lending in Indian
Country, even when it takes place outside of CRA assessment areas.17 For example,
under the ANPR's proposals, a mortgage, small business, small farm, or consumer loan
made by a bank on the Flathead Indian Reservation in Montana could be qualified as part
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of that bank's overall rating, even without the loan being within the assessment area of
any bank.
In addition, the ANPR proposes expanding consideration of CRA community
development activities to specific areas of need outside of a bank's assessment area(s),
with Indian Country being one of the proposed designations. As a result, the Board's
proposal makes clear that a bank in any part of the country could receive credit for
community development activities in Indian Country. Banks could receive credit for
investments in affordable rental housing, broadband expansion, or building community
and elder centers in rural areas and other areas of persistent economic distress. We hope
that this proposal responds to stakeholders' feedback emphasizing the critical importance
of community development in banking deserts, and we look forward to feedback on this
during the comment period.
The Board understands that broadening eligibility of CRA activities in Indian
Country beyond assessment areas is only part of what is required to address structural
economic inequities. We are particularly mindful of the importance of community voice
on community development projects, especially in Indian Country. Given this, the
ANPR seeks feedback on how best to incorporate government or tribal planning in
qualifying community development consideration for revitalization and stabilization
projects. This is critically important to increase banks' certainty that they will receive
CRA credit when they make impactful investments that have the support of tribal
governments and leaders, and to increase certainty about how these activities qualify for
CRA credit.
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Second, the ANPR proposes to encourage and reward banks for activities that are
responsive to community needs, particularly in harder to serve areas. The ANPR
proposes the use of impact scores for community development activities as a way to
ensure that performance evaluations adequately reflect the relative importance of loans
and investments within communities. Under the proposed approach, examinations would
assess the impact of a bank's community development activities, including those in
Indian Country. We hope that this approach will encourage banks to extend additional
CRA activities to areas with unmet needs, such as in Indian Country. The ANPR also
proposes clear steps to ensure that eligible activities taking place outside of assessment
areas are adequately reflected in a bank's CRA ratings.
Third, the ANPR contains several proposals that better support mission-focused
partners, including those working in Indian Country, to address challenges in credit
access and wealth building. Although a significant portion of household wealth is held
through homeownership for the U.S. overall, buying a home on trust land can be a
complicated transaction.18 Section 184 Indian Home Loan Guarantee Program loans
from the U.S. Department of Housing and Urban Development (HUD) are designed to
help Native Americans purchase homes, but the required application process can require
special expertise.19 Many Native MDIs have developed the requisite Section 184
expertise and are experienced in working with Native Americans across the country to
purchase homes on and off tribal lands. For example, the Chickasaw Community Bank
in Oklahoma, which is both an MDI and a CDFI, has a mission of helping Native
Americans around the country achieve homeownership and is one of the nation's largest
HUD Section 184 lenders.20
The ANPR includes several provisions to support MDIs like Chickasaw
Community Bank. Activities with MDIs can receive credit nationwide even when they
take place outside of assessment areas, and the ANPR asks for feedback on whether these
activities with MDIs should be a potential pathway to an outstanding rating. In an effort
to support mutually beneficial partnerships between MDIs, the ANPR also would provide
credit for MDIs and women-owned financial institutions investing in other MDIs,
women-owned financial institutions, and low-income credit unions, as well as in their
own institutions. We believe these and other ideas to support MDIs can help provide
incentives for majority-owned institutions to capitalize and to partner with these
institutions, which will ultimately support more equitable financial access to low-income
and minority consumers and communities.
In addition, the Federal Reserve has consistently heard that bank partnerships with
experienced CDFIs can play an important role in helping banks more effectively make
Indian Country loans and investments. During the pandemic, Native CDFIs have played
an outsized role in supporting tribal businesses and homeowners, providing financial
counseling, or extending loan terms for borrowers. For example, Lakota Funds in South
Dakota, led by Tawney Brunsch, helped 37 businesses access more than $100,000 in
COVID-19 emergency relief funds and provided more than $120,000 in small grants to
Native ranchers, businesses, and homeowners.21 Despite their valuable work, Native
CDFIs face substantial funding gaps.22
To encourage bank partnerships that advance financial inclusion and address
unmet credit needs, the ANPR seeks feedback on extending to CDFIs the status that is
extended to MDIs, women-owned financial institutions, and low-income credit unions.
This approach would effectively give banks CRA consideration for loans, investments, or
services in conjunction with a CDFI anywhere in the country. We look forward to
feedback on this potential approach, including the role this could play in Indian Country.
In short, we recognize the challenges you face are great and we want to ensure
CRA reform helps you to improve credit access and financial inclusion in tribal
communities. I am hopeful that the changes the Federal Reserve is considering will help
spur new partnerships and encourage greater bank investment for tribal communities that
have had inequitable access to financial services for too long. We need your input on
these proposals and we are ready to listen. Over the next three months, the Federal
Reserve System will host CRA ANPR outreach meetings and listening sessions around
the country, including in Indian Country. We encourage your feedback as part of these
events, in addition to submitting written comments by the deadline of February 16, 2021.
We thank you for your engagement thus far and look forward to hearing more from you
and your members through the rulemaking process.