01/29/2020 - The Community Reinvestment Act: Is the OCC Undermining the Law’s... - (EventID=110411)

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Wednesday, January 29, 2020 (10:00 AM) -- The Community Reinvestment Act: Is the OCC Undermining the Law’s Purpose and Intent? Connect with the House Financial Services Committee Get the latest news: https://financialservices.house.gov/ Follow us on Facebook: https://www.facebook.com/FinancialDems/ Follow us on Twitter: https://twitter.com/FSCDems ____________________________ This will be a single panel hearing with the following witness: • The Honorable Joseph M. Otting, Comptroller of the Currency, Office of the Comptroller of the Currency Overview The responsibility for prudential regulation of insured depository institutions is divided among four Federal regulators consisting of the Board of Governors of the Federal Reserve System (Federal Reserve), Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), and the National Credit Union Administration (NCUA). The Federal Reserve, FDIC, and NCUA testified before the Committee in December 2019. Comptroller Otting did not appear at that hearing, but provided written testimony. Therefore, this hearing will examine the OCC’s work on the Community Reinvestment Act, as well as other supervisory and regulatory developments. Community Reinvestment Act Proposed Rulemaking Since Comptroller Otting was sworn in on November 27, 2017, the OCC has advocated for reforming the Community Reinvestment Act (CRA). Enacted into law by Congress in 1977, CRA addresses how banks meet the credit and capital needs of the communities they serve. As part of landmark civil rights legislation passed in the 1960s and 1970s, CRA was created in response to redlining, a practice by which banks discriminated against prospective customers based primarily on where they lived, or their racial or ethnic background, rather than creditworthiness. In passing CRA, Congress affirmed that “regulated financial institutions are required by law to demonstrate that their deposit facilities serve the convenience and needs of the communities in which they are chartered to do business,” and for “each appropriate federal financial supervisory agency to use its authority when examining financial institutions, to encourage such institutions to help meet the credit needs of the local communities in which they are chartered consistent with the safe and sound operation of such institutions.” Under the current CRA framework, the primary banking regulators – specifically the OCC, FDIC and Federal Reserve – conduct regular examinations to evaluate banks’ activities to provide credit, services and make investments in low and moderate income (LMI) communities where the banks operate. CRA applies only to banks with federally insured deposits, and excludes bank affiliates, credit unions and nonbank financial companies. CRA examinations focus on LMI loans and investments by institutions in designated assessment areas.’ Assessment areas are defined by banks, and must “consist of one or more [Metropolitan Statistical Areas] or metropolitan divisions or one or more contiguous political subdivisions, such as counties, cities or towns . . . [and] must include geographies in which the bank has its main office, branches and deposit-taking ATMs, as well as the surrounding geographies in which the bank has originated or purchased a substantial portion of its loans.” Within assessment areas, CRA examinations evaluate banks’ service to local LMI communities and issue grades for the tests in the following three principal categories: lending, investment, and service. On August 28, 2018, the OCC issued an Advanced Notice of Proposed Rulemaking (ANPR), soliciting public comments on modernizing the CRA. The OCC’s ANPR drew nearly 1,500 comments. Several key pillars of the ANPR drew significant resistance from a broad set of respondents, including most notably the consideration of a simple ratio approach to CRA evaluations, focused principally on total CRA activities against total bank assets. On December 12, 2019, the OCC and FDIC released a Notice of Proposed Rulemaking (NPRM) on CRA modernization. FDIC Board Member Martin Gruenberg voted against the proposal, describing it as “a deeply misconceived proposal that would fundamentally undermine and weaken the Community Reinvestment Act.” It is notable that the Federal Reserve did not join this NPRM due to remaining concerns about certain elements of the proposed rulemaking. Key elements of the NPRM include: Measuring CRA Performance: Under the proposal, CRA evaluation and scoring relies on the sum of two metrics. The first is a ratio of total qualifying activities to retail domestic deposits, to which is added 0.01 times the ratio of bank branches in LMI census tracks, under-served areas, distressed areas, and Indian country to total branches. A bank’s score will be as follows: • 11% or higher = Outstanding • 6% to 11% = Satisfactory ... ... Hearing Page: https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=406021