. both bankers and community groups criticized the cra examination procedures as emphasizing process over results, arguing that the examination criteria were too subjective and that a more - quantitative system for evaluating institutions'cra performance should be developed. in response to these criticisms, president clinton in 1993 directed the agencies that implement cra to review and revise the regulations, with the goals of clarifying performance standards, making examinations and evaluations more consistent, and reducing the compliance burden. the cra regulations adopted in 1995 established for large institutions a three - pronged test based on performance in the areas of lending, investments, and services. while the regulations placed the greatest emphasis on lending, they encouraged innovative approaches to addressing community development credit needs. several provisions were included to reduce compliance costs, among them a new rule that allowed small banks to meet their requirements by means of a streamlined examination focused on lending activities. 9 when the new regulations were adopted, the agencies committed themselves to reviewing the regulations in 2002 to assess their effectiveness. the promised review made use of extensive public comment and scholarly research on the efficacy of cra programs. in their comments on the proposed revisions to the rules, bankers and community organizations generally agreed that the fundamental elements of the regulations were sound and that the agencies should maintain the overall structure of the 1995 regulations, although each group raised a number of specific issues. findings from the research by board staff members, in combination with the public comments, led the agencies to propose new definitions for " small " banks, which would be subject only to a lending test to assess compliance with the cra, and for " intermediate small " banks, which would be subject to a lending test as well as a new and more - flexible community development test ( avery, canner, mok, and sokolov, 2005 ). in addition, the research underscored the benefit of expanding the definition of " community development " to include activities benefiting middle - income communities in distressed rural areas and in disaster areas. the final rule was adopted in july 2005. in each of the major regulatory revisions, the goal of the regulators has been to increase the effectiveness of the cra in promoting the economic development of lower - income communities while reducing the associated compliance burden. again, making progress toward achieving these goals has been made easier by the flexibility of the original statute, which has allowed the regulators to the agencies sought to offer banks some flexibility in choosing an examination strategy that suited their business models. the 1995 regulations gave banks the option to

the resolution rules under the systemic - risk exception do not require that uninsured depositors and other creditors, much less stockholders, be made whole. the market has clearly evidenced the view, consistent with fdicia, that large institutions are not too big for uninsured creditors to take at least some loss should the institution fail. for example, no u. s. banking organization, no matter how large, is aaa - rated. in addition, research indicates that creditors impose higher risk premiums on the uninsured debt of relatively risky large banking organizations and that this market discipline has increased since the enactment of fdicia. to be sure, the real purchasing power of deposit insurance ceilings has declined. but there is no evidence of any significant detrimental effect on depositors or depository institutions, with the possible exception of a small reduction in those profits that accrue from deposit guarantee subsidies that lower the cost of insured deposits. the current deposit insurance ceiling appears more than adequate to achieve the positive benefits of deposit insurance that i mentioned earlier, even if its real value were to erode further. another argument is often raised by smaller banks regarding the need for increased deposit insurance coverage. some smaller institutions say that they are unable to match the competition from large securities firms and bank holding companies with multiple bank or thrift institution affiliates because those entities offer multiple insured accounts through one organization. i note that since the committee's last hearings on this issue, the force of small banks'concerns has been reduced by recent market developments in which small banks and thrift institutions can use a clearinghouse network for brokered deposits that allows them to offer full fdic insurance for large accounts. the board agrees that such practices by both large and small depositories are a misuse of deposit insurance. moreover, raising the coverage limit for each account is not a remedy for small banks because it would also increase the aggregate amount of insurance coverage that multidepository organizations would be able to offer. the disparity would remain. conclusion several aspects of the deposit insurance system need reform. the board supports, with some modifications, all of the recommendations the fdic made in the spring of 2001 except indexing the current $ 100, 000 ceiling to inflation. the thrust of our recommendations would call for a wider permissible range for the size of the fund relative to insured deposits, reduced variation of the insurance premium as the relative size of the fund changes with banking and economic conditions, a positive and more