As regulators undertake the process of updating the CRA regulations, they must consider the advances in technology and innovation that have taken place in the three decades since the statute became law, ABA said. This includes an acknowledgement that technology has enabled banks to expand their business beyond a limited geographic location, the association added.
ABA also emphasized the need for greater clarity, transparency and predictability around the CRA examination, including the types of activities that count toward CRA credit and how CRA ratings are derived. The association called for regulators to recognize that community development needs and opportunities in small towns and rural areas can be vastly different from those in urban centers.
In addition, ABA urged regulators to address market distortions in areas where the market is over-saturated and there are fewer opportunities to obtain community development credit; improve the supervisory process; and consider applying CRA-like requirements to credit unions and other financial firms.
ABA also highlighted the pros and cons of creating a quantitative metric for measuring banks’ CRA performance, a key question posed in the ANPR. ABA noted that under the current framework, regulators often apply unofficial and unpublished CRA goals, and that adoption of quantitative metric could provide banks with a more objective and predictable measure.
However, the association raised concerns that taking a quantitative approach could lead to the loss or diminution of the current framework’s “performance context,” which considers information about the individual institution, its community and its competitors as part of the evaluation. ABA advocated strongly for this performance context to remain part of any modernized CRA framework and to continue to play an important role even if a quantitative metric were to be adopted.
While ABA did not take a position on whether regulators should pursue a metric-based approach, it emphasized that any metric should be vigorously tested before a proposal is issued. ABA added that it would not be appropriate to apply one single metric to every bank in the country, given the wide range of business strategies and operating models in the banking sector. The association urged regulators to right-size the existing small bank and intermediate small bank thresholds, and recommended that community banks have the option to be evaluated based on a lending test similar to the standard applied to small banks today.