silver | cra exam breakdown
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Breaking Down CRA Exams
Breaking Down the CRA ExamJosh Silver, Vice President of Research and Policy, NCRCApril 20, 2012
Breaking Down the CRA Exam
• Federal Reserve Board http://www.federalreserve.gov
• Federal Deposit Insurance Corporation http://www.fdic.gov
• Office of Thrift Supervision (ceased operations but still has exams on wepbage) http://www.ots.treas.gov
• Office of the Comptroller of the Currency http://occ.gov
• Federal Financial Institutions Examination Council http://www.ffiec.gov
Federal Agencies Conducting CRA Exams
Breaking Down the CRA Exam
• CRA exams scrutinize banks about once every two years for banks or thrifts with assets > $250 million. Once every four or five years for small banks with assets < $250 million
• Banks and thrifts receive one of four grades: Outstanding, Satisfactory, Needs-to-Improve, and Substantial Non-Compliance
• Possible Low- and High-Satisfactory Ratings for component tests and geographical areas
CRA Exams: Frequency & Ratings
Breaking Down the CRA Exam
• Every 3 months, the federal agencies publish a schedule of CRA exams. • Obtain the schedule from the federal agency websites or from NCRC.
• Locate regional office of agency conducting CRA exam – NCRC can help
How to Find Out About CRA Exams
Breaking Down the CRA Exam
• Less than $250 million
• Lending test only • Five factors including responses to public complaints
• No reporting of CRA data on small business or community development lending
Small Banks
Breaking Down the CRA Exam
• Banks and thrifts with assets between $250 million and $1 billion.
• Lending and community development (CD) test.
• Not required to report CRA data on small business or farm lending
Intermediate Small Banks
Breaking Down the CRA Exam
• Large bank exam – banks with assets above $1 billion
• Lending, investment, and service test.
• Large banks must report CRA small business, farm and CD loan data.
Large Bank CRA Exams
Breaking Down the CRA Exam
• Community Development Test
• Strategic Plan – in lieu of regular exam, mostly used by non-retail banks
Exams for Wholesale and Limited Purpose Banks
Breaking Down the CRA Exam
• Assessment Areas – Make sure do not exclude LMI areas
• Affiliates – Bank can choose to include/exclude affiliates
• Performance context – make sure examiners adequately asses needs; don’t excuse poor performance on poverty rates, or lack of investment opportunities
Parameters for CRA Exams
Breaking Down the CRA Exam
• Do the measures fairly and rigorously measure performance?
• Lending Test – Bank’s percent of loans to LMI compared to all lenders, as a group. Consistently above or below? OCC – Market share analysis – Bank’s share of loans in LMI market compared to bank’s overall market share
• Investment Test – investments to Tier 1 capital or assets; in addition to quantitative measures, are investments innovative or responsive
• Service Test – any quantitative information on number of bank accounts; percent of branches in LMI neighborhoods compared to peers or demographics?
Performance Measures
Breaking Down the CRA Exam
• Excellent - corresponds to Outstanding
• Good – corresponds to High Satisfactory
• Adequate – corresponds Low Satisfactory
• Poor – corresponds to Needs to Improve
• Very poor – corresponds to Substantial Noncompliance
Words Used by Examiners
Breaking Down the CRA Exam
• CRA has leveraged trillions of dollars in loans, investments, and services since 1977; studies have demonstrated positive impact in increasing safe and sound loans and investments: Federal Reserve, Harvard University, NCRC
• Comments on CRA exams can influence ratings overall or in one or more geographical areas or component tests; lower ratings on any of the exam components are motivation for banks to improve
• Merger application process – more likely bank will make reforms or make a specific pledge if members of public comment; $180 billion Capital One pledge, for example.
• On-going discussions with bank CRA officials in your community
Why Being Active on CRA Exams is Important
THANK YOU!
To follow up with the speaker:
Josh Silver, Vice President of Research and PolicyNational Community Reinvestment Coalition202-464-2708 or [email protected]
Presentations will be available at www.ncrc.org/conference by April 30, 2012