Pub. 10 2020 Issue 1

7 ISSUE 1. 2020 On Dec. 12, 2019, two of the three agencies, the FDIC and OCC, published their Notice of Proposed Rulemaking (NPR) to update the CRA’s data collection and reporting. Despite only two agencies participating, the FDIC and OCC are heavy-hitters in the CRA, with an estimated 70% of CRA activities being conducted by banks overseen by the OCC, and another 15% of CRA-driven institutions overseen by the FDIC. To simplify, the NPR can be broken down into three key areas: Assessment Areas Updates for CRA-eligible activities; and Performance Measurements. Assessment Areas First is a proposed update to the definition of assessment area. Currently, areas are determined based on the physical presence (branches and ATMs) of a bank in a geographic zone. Forcing banks to rely on physical branches runs counter to current practices, so the proposal expands this definition to include areas where banks con - duct a substantial amount of their retail lending and deposit gath- ering, going beyond physical locations. With the “50%-5%” rule, banks that receive 50% or more of their deposits from outside their current assessment areas would be required to make any area that contributes at least 5% of deposits a new assessment area. Banks potentially would receive credit for qualifying activities outside of their assessment areas, allowing banks to claim credit for investing in areas that have limited access to physical banking locations (i.e., tribal lands and underdeveloped rural areas). OCC officials have noted, however that few banks would see their assessment areas significantly altered. Updates for CRA-eligible activities All banks suffer from a lack of clarity surrounding how different loans qualify for the CRA. This change would clarify the type of activities that qualify for credit, with most of them echoing what has been historically encouraged by the CRA. Regulators would have to regularly publish an illustrative list of approved CRA activities, both from lending and investments. Additionally, regulators would have to create a process whereby banks could have projects ap- proved for credit before underwriting. Some noteworthy examples in the NPR about approved CRA activities include: • Investment in mortgage-backed security (MBS) that are pri- marily secured by loans to LMI borrowers; • Investment in an SBA Guaranteed Loan Pool Certificate; • Purchase of a local municipal bond, where the proceeds will be used to construct a new school for students from all income levels, including students from LMI families; and • Bank certificate of deposit in a minority depository institution. The proposal would also address how CRA investment is scored over time. The current framework provides too much credit to some activities regardless of how long they have been on the bank’s balance sheet, or even when they do not result in a new qualifying activity. The changes would ensure that the bank’s balance sheet is reflective of its ongoing commitment to CRA, and not just for the next exam. In doing this, the exam-to-exam format a full service business law firm Buchalter Commercial Finance attorneys represent the most dominant institutions in the commercial finance market.The firm has practiced in this area since its inception in 1933. In Arizona, contact: Jeffrey Ekbom 480.383.1821 JEkbom@buchalter.com Continued on Page 8