Like kids in a sandbox the regulators cannot agree on the rules of the game being played. In this case the game is the Community Reinvestment Act. The implementing regulations and examinations procedures have been in serious need of revisions for 25 years.
The agencies seem to agree that changes are needed, they just can’t agree on the direction of the change. Last year Comptroller of the Currency Otting jumped the gun and published an advanced notice of proposed rulemaking (ANPR) without agreement of the other agencies. The other agencies downplayed the incident, indicating they would join in the proposed rulemaking (NPRM). Now Comptroller Otting is about to do it again. Apparently he plans to issue a NPRM in December whether the Federal Reserve Board and the FDICÂ join in the process or not.
The Chairman of the FDIC has indicated that she sees the benefits of joining the Office of the Comptroller of the Currency (OCC) in support of a plan that would overhaul rules regarding how banks serve lower-income communities, even though the Federal Reserve might not endorse the changes.
All of the agencies have worked on the proposal to overhaul CRA, but they have had disagreements. One point of contention has been the one-ratio proposal, which makes compliance dependent on one metric such as CRA-eligible activity compared to deposits or assets. The change would mark a shift away from the process of using a number of factors to judge whether banks are meeting CRA requirements. The current process allows a bank to compensate for lackluster performance in one criterion with better performance in another. The one-ratio process reduces that flexibility.
Otting believes it is important that financial institutions have greater transparency into how regulators conduct CRA assessments. He added that he would also like to bring more flexibility to what is considered CRA-eligible activity.
Otting noted that banks have been relying primarily on mortgages to meet CRA-lending obligations, but he wants institutions to become more creative. He would like to give banks a list of all activities that qualify for CRA and also encourage them to think of their own unique ideas that they can propose to regulators as potentially CRA-eligible activities. He noted that activities such as bank internships to individuals from certain communities could become CRA-eligible.
It appears doubtful that the Federal Reserve will join the other regulators if the proposal comes out in December. After the comment period, Otting hopes the rule is finalized by the spring of 2020.
No one wins if the regulators and the regulations are out of sync. It is time for the kids in the sandbox to grow up and act like responsible adults.
