Community bankers express concern about CRA rule, regulatory burden

Minutes of the most recent meeting of the Federal Reserve’s Community Depository Institutions Advisory Council show that council members were disappointed with the final rule to modernize how banking agencies assess compliance with the Community Reinvestment Act, finding the rule overly prescriptive and not offering community banks a clear path to meet its expectations.

CDIAC is composed of representatives of banks, thrift institutions and credit unions serving on local advisory councils at the twelve Federal Reserve Banks. Recently released minutes from the council’s Nov. 16, 2023, meeting noted there was a feeling among council members that agencies did not consider or incorporate all the feedback provided by the banking industry over the years before the release of the final rule, “resulting in a note of resignation expressed by council members.”

“The council fears that the path toward implementation of the new CRA rule will be bumpy and have unintended consequences,” the minutes said. Council members suggested that banking agencies help to prepare financial institutions for changes by sharing training materials intended for training supervision and examination staff, as well as providing access to the analytical software that will be used by examiners to determine the scores. At the same time, council members did not believe that the asset size thresholds in the rule would protect smaller community depository institutions. “The cost of software, which would disproportionately impact smaller CDIs, and lack of clarity on the data required were two of the largest barriers to implementation, followed by increased labor costs and a lack of experts in their regions,” according to the minutes.

CDIAC members also expressed concern about the cumulative impact of all the regulations that have been issued over the past 10-15 years, the minutes show. “And over the past two years, many CDIs believe that the federal banking agencies have issued new proposals and final regulations that will hurt the economic viability of the CDI business model. Council members said that regulatory efforts are simply helping to speed up the trend toward greater industry consolidation, contradicting the current administration’s interest in promoting competition in the banking industry and having a viable CDI business model.”