Brainard Floats Fed’s Alternative Ideas on CRA Modernization

Federal Reserve Governor Lael Brainard, the agency’s point person for the Community Reinvestment Act modernization process, today outlined the Fed’s approach to revising CRA rules and explained why the Fed did not join the notice of proposed rulemaking issued last month by the OCC and the FDIC. The Fed’s approach chiefly differs from the OCC and FDIC’s in how it measures CRA performance.

“We continue to believe that a strong common set of interagency standards is the best outcome,” she said in Washington, D.C. “By sharing our work publicly, we hope to solicit public input on a broader set of options for reform and find a way toward interagency agreement on the best approach. . . . Given that reforms to the CRA regulations are likely to set expectations for a few decades, it is more important to get the reforms done right than to do them quickly.” Brainard’s speech—which was not a formal regulatory proposal—came as the OCC and FDIC NPR was set to be published tomorrow in the Federal Register, making March 9 the deadline for public comments.

Specifically, Brainard said, the Fed recommends two tests, one for retail lending applicable to all banks and one for community development activities applicable to larger banks, wholesale banks and limited-purpose banks. These tests would include qualitative standards to allow more tailored performance metrics. This differs from the OCC and FDIC proposal, which would measure both the share of retail lending to low-to-moderate-income individuals and areas, as well as the impact of that activity and combine those measures into a “presumptive rating” that could be adjusted by examiners based on performance context and other factors.