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F ederal R eserve Bank
OF DALLAS
ROBERT

D. M C T E E R , J R .

P R E S ID E N T
AND

C H IE F E X E C U T IV E

O F F IC E R

F e b r u a r y 26, 1993

DALLAS, TEXAS 75222

N o t i c e 93-21
TO:

T h e C h i e f E x e c u t i v e O f f i c e r o f each
m e m b e r b a n k and o t h e r s c o n c e r n e d in
t he E l e v e n t h Federal R e s e r v e D i s t r i c t
SUBJECT
I n t e r a g e n c y Q u e s t i o n s and A n s w e r s
Regarding Community Reinvestment
DETAILS

T h e C o n s u m e r C o m p l i a n c e T a s k F or c e o f the Federal F in a nc ia l I n s t i t u ­
t i o n s E x a m i n a t i o n C ou ncil (FFIEC) has a d o p t e d r e v i s e d I n t e r a g e n c y Q u e s t i o n s
and A n s w e r s r e g a r d i n g c o m m u n i t y r e i n v e s t m e n t .
To h el p f i n an c ial i n s t i t u t i o n s m e e t t h e i r r e s p o n s i b i l i t i e s u n d e r the
C o m m u n i t y R e i n v e s t m e n t A c t and to i n c r e a s e p u b l i c u n d e r s t a n d i n g o f the r e g u ­
l a t i o n s and e x a m i n a t i o n p r o c e d u r e s , the s t a f f s o f the Federal R e s e r v e Board,
t he Federal D e p o s i t I n s u r a n c e C o r p o r a t i o n , t he O f f i c e o f T h r i f t S u p e r v i s i o n ,
and t he O f f i c e o f the C o m p t r o l l e r of the C u r r e n c y h av e p r e p a r e d a n s w e r s to the
m o s t c o m m o n l y a s k e d q u e s t i o n s a bo u t c o m m u n i t y r e i n v e s t m e n t .
T h e q u e s t i o n s and
a n s w e r s s h o u l d n ot be r e g a r d e d as off ic i al i n t e r p r e t a t i o n s .
T h e i r p u r p o s e is
to p r o v i d e useful g u i d a n c e to a g e n c y p e r s o n n e l , f i n an c ial i n s t i t u t i o n s , and
the p ubli c.
The d o c u m e n t i n c l u d e s f ou r n e w q u e s t i o n s , w h i c h a d d r e s s the
following:
•

T h e a g e n c i e s ’ e m p h a s i s on l e n d i n g and i n v e s t m e n t r a t h e r than
d o c u m e n t a t i o n (23);

•

S t a t e C R A p e r f o r m a n c e e v a l u a t i o n s and t he p u b l i c f il e (13);

•

O u t s i d e a c t i v i t i e s and C R A p e r f o r m a n c e (22); and

•

I n s t i t u t i o n s ’ t a r g e t i n g s p e c i f i c e t h n i c g r o u p s and C R A c o n s i d e r ­
a t i o n s (5).

T h e q u e s t i o n s and a n s we r s are n o w o r g a n i z e d by s u b j e c t m a t t e r w i t h
t he p r e v i o u s l y a s s i g n e d n u m b e r s a p p e a r i n g in p a r e n t h e s e s .
Q u e s t i o n s and
a n s w e r s p r e v i o u s l y n u m b e r e d 4 and 5 w e r e d e l e t e d b e c a u s e t h e y w e r e b a s i c a l l y a
r e i t e r a t i o n o f t he r e g u l a t i o n , and t h o s e p r e v i o u s l y n u m b e r e d 11 and 19 w e r e
d e l e t e d b e c a u s e o t h e r q u e s t i o n s and a n s w e r s a d d r e s s t he s am e issues.
Other
m i n o r m o d i f i c a t i o n s w e r e m a d e as n e c e s s a r y to i m p r o v e c l a ri ty.

For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal Reserve Bank of Dallas:
Dallas Office (800) 333-4460; El Paso Branch Intraslate (800) 592-1631, Interstate (800) 351-1012; Houston Branch Intrastate (800) 392-4162,
Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

- 2 -

ATTACHMENT
T h e e n t i r e set o f q u e s t i o n s and a n s w e r s is a t t ac h ed.
MORE INFORMATION
F or a d d it i o n a l i n f or m a t i o n , p l e a s e c o n t a c t D e b r a C l e me n t s , C o m p l i ­
a nc e A n a l y s t , FFIEC, at (202) 6 3 4 - 6 5 2 6 .
For a ddit i o n a l c o p i e s o f t hi s B a n k ’s
n ot ice, p l e a s e c o n t a c t t he P u b l i c A f f a i r s D e p a r t m e n t at (214) 9 2 2 - 5 2 6 1 .
Sin ce r el y yours,
J®.

.

INTERAGENCY QUESTIONS AND ANSWERS REGARDING CRA

SCOPE OF THE CRA/S COVERAGE
1. (2 6)

Are there any "regulated financial institutions” that are
excluded from the scope of CRA?

In general, the CRA defines a "regulated financial
institution" as one that meets the definition of an
insured depository institution, under Section 3 of the
Federal Deposit Insurance Act.
However, the banking
agency CRA "Interpretation 101" (12 CFR 25.101, 12 CFR
228.100,
and 12 CFR 345.101)
excludes from CRA
requirements certain institutions that serve solely as
correspondent banks, trust companies, or clearing agents.
The banking agencies have also excluded from CRA certain
financial institutions whose activities are limited to
providing
cash
management
controlled
disbursement
services.
The rationale used in allowing certain
financial institutions to be excluded from the scope of
CRA is that these institutions are only incidentally
involved, if at all, in granting credit to the public.
The financial supervisory agencies periodically review
the applicability of CRA to other types of financial
institutions.
2. (1)

What does the
regulation?

term

"office"

mean

as

used

in

the

Office refers generally to a facility of an institution
that accepts deposits, including an electronic deposit
facility.
It does not include purely administrative
offices, agencies, loan production offices or facilities
used, for example, only for the check collection process.
In delineating a local community, an institution need not
consider shared electronic deposit facilities, unless
otherwise
directed
by
the
appropriate
financial
supervisory agency.
3.

(24)

How are bank and savings association holding companies
affected by the CRA?

The CRA applies to applications filed by holding
companies to merge or to acquire banks and savings
associations.
When decisions on such applications are
made, the Federal Reserve Board and the Office of Thrift
Supervision will consider the CRA records of all the bank
or savings association subsidiaries of the applicant
holding company.
The parent holding company need not
prepare a CRA Statement or public notice, or maintain
public comment files; but are encouraged to ensure that
subsidiary financial institutions have expanded CRA

statements
that
include
a
description
of
the
institution's CRA performance. The holding company must
conform to the requirements of the applicable regulation
for media notices of corporate applications filed to
acquire a bank or savings association.
DELINEATION OF THE CRA COMMUNITY
4.

(2)

What is meant by "local community" and how detailed a map
should be used to portray it?

The term "local community" refers to the contiguous area
surrounding each office or group of offices of an
institution. Although the geographic areas served by an
institution may vary with the type of service, only one
local community is to be delineated for a particular
office or group of offices.
Any map which depicts an
institution's local community or communities with
reasonable clarity may be used.
The map need not show
each
street
in the community,
nor be prepared
professionally
by
a
cartographer.
Lowand
moderate-income neighborhoods should not be specifically
indicated on the map.
The community delineation,
however,
must
not
unreasonably
exclude
such
neighborhoods.
An institution may delineate several
local communities on one map.
However, each local
community, comprising the entire community, must be
delineated with sufficient clarity so that the areas
included in those local communities are obvious. If the
entire community is made up of more than a few local
communities, or the local communities are separated by
significant distances, it may be easier and clearer to
use
a
separate
map
for
each
local
community.
Furthermore, the locations of the institution's offices
need not be shown on the maps.
5.

(new)

Can a financial institution identify a specific ethnic
group, rather than a geographic area, as its delineated
community; and can this financial institution target a
specific ethnic group in designing and marketing products
and services?

As indicated in the answer to Question four of this
series, an institution must geographically delineate its
local community (ies) on the basis of the locations of its
offices. A delineation that does not have a geographic
basis would be inconsistent with the CRA and implementing
regulation. (The only permissible exception involves an
institution's ability to delineate a "military community"
in addition to the geographic communities surrounding its
offices.)
If an institution can maintain compliance with the Fair
Housing and Equal Credit Opportunity Acts (and this may
- 2 -

not always be possible), it may direct the marketing of
its products and services to one or more specific ethnic
groups.
However, institutions that target a single
ethnic
group,
while
having
offices
located
in
multi-ethnic areas, often exhibit significant lending
disparities and unsatisfactory CRA performance.
6. (3)

How
should
an
institution
moderate-income neighborhoods
delineation?

deal
with
lowand
in its local community

The CRA regulation requires that low- and moderate-income
neighborhoods not be unreasonably excluded from a
delineation of the local community.
Institutions are
expected
to
be
generally
aware
of
lowand
moderate-income neighborhoods within their community,
without undertaking extensive research. No attempt need
be made to distinguish between low-income neighborhoods
and moderate-income neighborhoods.
If institutions
desire further information about low- and moderate-income
neighborhoods, they should consult such sources as state
and local community development and planning agencies.
THE CRA STATEMENT
7. (6)

If an institution is prepared to offer particular types
of credit only at some of its offices in a local
community, should those types of credit be listed on the
CRA Statements of all of its offices in that community?

Yes. Because the institution is willing to extend that
type of credit to any creditworthy borrower in the
community, the institution should list the same types of
credit on the CRA Statement available at each office
within a particular local community even though a
prospective borrower at one office may be referred to
another when seeking to make application.
The
institution should recognize, however, that public
complaints may arise because of such practices; and the
financial supervisory agencies will have to decide
whether
the
practice
significantly
discourages
applications for such credit or otherwise adversely
affects the institution's CRA performance.
THE CRA

PUBLIC NOTICE

8.

Are there any requirements relating to
the size and
placement of the Community Reinvestment Act Notice?

(13)

The notice must be placed in the public lobby of the
financial institution but the
size and placement may
vary.
For example, if the notice takes the form of a
poster, the poster must be placed within the lobby where
- 3 -

it will be seen by customers and be of sufficient size to
be easily read from a normal distance. If the notice is
provided in the form of a brochure, a supply of such
brochures printed in easily read type and placed where
they will be noticed will suffice.
THE CRA AND PUBLIC COMMENT
9. (14)

What information and avenues of communication are
available to members of a community who are concerned
about the CRA performance of financial institutions in
their community?

Financial institutions are encouraged to communicate with
members of their community. The CRA regulations require
financial institutions to make their CRA Statement and
the public CRA Performance Evaluation available to the
public. The statement contains a copy of the Community
Reinvestment Act Notice which must be placed in the
offices of all financial institutions. The notice states
that the public may write to the financial institution or
the
appropriate
supervisory
agency
about
the
institution's performance in helping to meet community
credit needs.
The public may also review letters received by the
financial institution regarding its CRA performance and
the public CRA Performance Evaluation prepared by the
institution's
financial
supervisory
agency.
Announcements of CRA-covered applications may be obtained
by writing to the institution's financial supervisory
agency.
Anyone may comment on the filing of an
application by writing to the appropriate financial
supervisory agency listed either in the applicant's
newspaper notice or its CRA notice.
The financial
supervisory agencies have varying comment periods for
applications. Therefore, any questions about the comment
period should be directed to the financial supervisory
agency. Comments received within the appropriate period
will be considered by the financial supervisory agency in
the application process.
10.

(9)

Are all signed, written CRA comment letters to be placed
in the public comment file?

The regulations state that the institution must put into
a public comment file, all signed, written comments
relating to the CRA Statement or to the institution's
performance in helping to meet community credit needs.
The only exceptions are comments that reflect adversely
on the reputation of any person, or which would violate
a law.
The institution must use its own judgment in
deciding which comments should be placed in the public
comment file. Signed, written comments which might harm
- 4 -

a person's
reputation
should be
retained
in
confidential file for inspection by the examiner.

a

Comments received by a financial supervisory agency will
be on file at that agency.
Those comments are also
available to the public unless the Freedom of Information
Act prohibits their disclosure.
11. (10)

If a letter is addressed in part to an institution's
overall CRA performance, but contains information which
is harmful to an individual or violates a law, should the
institution withhold the entire letter from the public
file?
The institution may do so. Alternatively, the statements
which reflect adversely on an individual or violate a law
may be deleted from the letter and the balance included
in the public file.
In any event, the entire original
letter should be retained in a confidential file for
inspection by the examiner.

12. (21)

In assessing an institution's CRA performance, does an
examiner consider and evaluate information outside of the
institution being examined?
Yes, an examiner should seek and consider any information
that is necessary to complete a fair and accurate picture
of the institution's CRA performance. Contacts will be
made, for example, with persons who have commented on an
institution's
performance,
local
officials,
local
business owners,
community residents,
real estate
brokers, or others who may be able to provide information
concerning local financial institutions in helping to
meet those needs. In addition, if the examiner believes
that the institution's description of its community is
unreasonable, the examiner may review the delineations of
other, similar institutions in the community.

13.

(ne«)

May a State-chartered financial institution place a copy
of a community reinvestment performance evaluation
prepared by a State regulatory agency in the comment
file(s) maintained for public inspection pursuant to
Federal rules?
A signed written comment, that addresses an institution's
CRA Statement or performance in helping to meet the
credit needs of its community, received from the public
during the past two years should be placed in the public
comment file. For the purposes of the Federal financial
supervisory agencies' CRA implementing rules, any comment
not prepared by the institution itself or its Federal
financial supervisory agency may be considered to be from
"the public." Institutions should consider the answers
to Questions 10 and 11 of this series, if they are
concerned that the disclosure of information received
- 5 -

from a State regulatory agency or other source would
violate Federal rules. Institutions are also advised to
consult with their State regulatory agencies if they are
unsure of what material received from the State is
intended for public availability.
14.

(12) Must the institution respond to any or all
received from the public?

comments

There is no requirement that the institution respond.
However, the institution may find it helpful to respond
to certain comments to foster a dialogue with members of
the community or to present relevant information to a
financial supervisory agency.
If any institution
responds to a letter in the public comment file, the
response must also be placed in that file, unless it
reflects adversely on any person or violates a law.
15.

(8)

How should past and current CRA Statements and public
comment files be made available to the public in each
office of an institution, particularly an institution
that has offices in more than one local community?
An institution that has offices in more than one local
community should maintain current CRA Statements for all
its local communities at its head office and current CRA
Statements for each local community in each office of the
institution in that local community, except off-premises
electronic deposit facilities. Any CRA Statements that
were in effect during the past two years should be
retained with the public comment letters in the public
comment file. A comment file for the entire institution
must be maintained at the head office, and a comment file
pertaining to a particular local community must be
retained at a designated office in that community.
A
copy of the most recent public CRA Performance Evaluation
prepared
by
the
institution's
Federal
financial
supervisory agency must be maintained in each of the
public comment files.

ASSESSING THE RECORD OF PERFORMANCE UNDER THE CRA
16.

(17)

Will an institution's performance in helping to meet
community credit needs be assessed even if an institution
does not intend to make an application covered by the
CRA?
Yes.
While Congress directed that the approval or
rejection of applications be used to encourage community
reinvestment by banks and savings associations on a safe
and sound basis, it also sought to have each financial
supervisory agency use its examination process "to
encourage" institutions to be sensitive to their
responsibilities to help meet local credit needs.
- 6 -

17.

(16)

Will activities in addition to lending be considered in
the CRA assessment?

Yes.
Although the principal focus is on lending, the
financial supervisory agencies recognize that other
activities and efforts contribute toward the CRA's goals.
The financial supervisory agencies will consider the
extent to which an institution's activities foster local
community revitalization. For example, the agencies will
consider the institution's purchase of state or municipal
bonds or involvement through investment or other
contributions in a local community development project.
The agencies also will consider activities such as:
o

o

Marketing and special credit-related programs to
make community members aware of credit services
offered at its offices;

o

(29)

The institution's record of opening and closing
branches and offering services (including noncredit
services);

o

18.

Efforts to establish meaningful dialogue with
community members concerning credit needs of the
community;

The extent of participation by the institution's
board of directors in formulating policies and
reviewing its CRA performance.

in addition to traditional direct lending activities,
what activities can financial institutions consider in
meeting obligations and responsibilities under the
Community Reinvestment Act?

The answer to this question is primarily designed to
provide guidance to regulated financial institutions that
are not "full service" providers.
The guidance herein
can also be utilized by full service institutions as a
means of augmenting their traditional lending activities
as part of a comprehensive CRA program.
Some of these
activities may require prior financial supervisory agency
approval.
The following are some non-traditional activities that
financial institutions may consider to help meet their
responsibilities under the Community Reinvestment Act.
Debt Investments and Related Securities

o

Purchase
of
mortgage-backed
securities
or
collateral trust notes from lenders or other
community
development
finance
intermediaries
serving primarily low- and moderate-income areas or
persons.
- 7 -

o

Purchase of housing,
community and
economic
development loans, or participations in loans or
loan pools from other financial institutions, state
and
local
government
agencies,
nonprofit
community-based development corporations, community
loan
funds,
or
other
community
development
intermediaries originating loans to help meet the
needs of low- and moderate-income persons or small
businesses.

o

Purchase of government
guaranteed
loans
(or
participations in pools representing such loans)
made to low- and moderate-income persons, or to
small farm and small business owners, such as:

—

o

SBA guaranteed loans or loan pools;
FmHA guaranteed farm, business or housing
loans;
FHA insured loans;
EDA (U.S. Economic Development Administration)
guaranteed loans;
State housing or economic development agency
guaranteed loans.

Purchase of state
housing mortgage
revenue bonds.

and local government agency
revenue bonds or industrial

Equity Investments

Some activities to serve community credit needs may be
carried out through certain federal and state supervisory
agencies' programs to promote community development
investments.
Such investments are required to serve
predominantly a public or community purpose. Activities
that might be carried out directly by an institution
under these programs include:
o

Purchase of limited partnership shares to provide
the equity financing for public purpose projects
such as construction of low- and moderate-income
housing or provision of small business seed
capital. General partners could be quasi-public or
private, for-profit or nonprofit organizations;

o

Investment in the stock of a public purpose
corporation,
either
for-profit
or
nonprofit,
chartered to carry out activities to benefit lowand moderate-income areas and residents or small
businesses.

For certain banks and holding companies, the formation
of, or investment in, a community development corporation

- 8 -

may, in accordance with applicable laws and restrictions,
be a viable way to address certain credit needs in the
communities of banks or holding company subsidiary banks.
Limited service or specialized banks in a holding company
that owns a community development corporation operating
in the bank's community could take advantage of the CDC's
activities in planning and executing its own CRA
responsibilities. Activities that could be carried out
through a community development corporation subsidiary
include, for example:
o

Acting as a general partner, joint venture partner
and/or equity investor in projects that have a
clear public purpose, particularly projects focused
on assisting low- and moderate-income housing or
small business,
and on the redevelopment of
deteriorating or blighted areas where private
developers are not interested in the opportunities;

o

Carrying out a program to provide needed technical
assistance on financial matters to small businesses
or public-purpose organizations;

o

Financing and managing a public-purpose revolving
loan fund to provide financing that cannot normally
be provided through the private market. An example
is a fund to lend monies for pre-development costs
involved in evaluating and packaging projects for
financing by financial institutions and/or public
sector investors.

An activity that could be carried out by the institution,
directly or through establishment of a separate
corporation, is an investment in a wholly-owned or
multi-bank/multi-investor Small Business
Investment
Company (SBIC) or Minority Enterprise Small Business
Investment Company (MESBIC) licensed by the U.S. Small
Business Administration.
Other Services and Activities
o

Letters/lines
of
credit
to
community-based
organizations,
private
developers,
nonprofit
development corporations or other community finance
intermediaries to support financing of low- and
moderate-income
housing
or
small
business
development.

o

Highly targeted corporate contributions (monetary
and in-kind) to support the personnel, facilities,
marketing and finance activities of community-based
nonprofit
organizations
or
other
financial
intermediaries that explicitly focus on helping
meet credit needs of low- and moderate-income
- 9 -

persons or small businesses.
might include:

Such organizations

Nonprofit,
neighborhood
development
corporations;
Housing
and
other
credit
counseling
organizations;
Community foundations and loan funds;
Neighborhood Housing Services organizations;
SBA 504 Certified Development Companies.
o

Technical assistance to community-based nonprofit
groups, state and local government agencies and
community development finance and secondary market
intermediaries which focus on helping to meet the
credit needs of low- and moderate-income persons or
areas, or small businesses.
Examples of such
technical assistance activities might include:

—
—

o

19.

(15)

Serving on the board of directors or loan
review committee;
Development
of
loan application
and
underwriting standards;
Development of loan processing systems;
Development of secondary market vehicles or
programs;
Marketing assistance, including development of
advertising and promotions,
publications,
workshops and conferences;
Training for staff and management;
Accounting/bookkeeping services;
Fund-raising,
including
soliciting
or
arranging investments;
Consumer education to broaden knowledge and
use of credit and deposit services.

Assistance to community development credit unions
in the institution's local community through, for
example, provision of technical assistance or
stable deposits to fund the credit union's lending.

Must an institution document that is actually extending
the types of credit listed in its CRA statement as being
offered in the local community?

The CRA regulations do not require the maintenance of any
documentation other than the public comment files, CRA
Statements and CRA Notices.
However, an institution's
level of CRA performance depends far more on its credit
activities than it does on strict regulatory compliance.
In assessing CRA performance, examiners will review:
o

Any analyses of the geographic distribution of the
institution's credit extensions, applications, and
denials prepared by the institution;
- 10 -

o

Disclosure statements, aggregation tables and Loan
Application Registers,
if the institution is
subject to the Home Mortgage Disclosure Act;

o

Periodic financial reports filed by the institution
with its supervisory agency;

o

Records such as credit files required to
be
maintained under Federal Reserve Regulation B
implementing the Equal Credit Opportunity Act;

o

Other loan documentation that may be required under
agency regulations and other information that the
institution
may
have compiled
for
internal
reporting and monitoring purposes;

o

Marketing materials such as advertising copy.

The
documentation that the agencies expect to
be
maintained is primarily that which is useful to the
institution's
ownmanagement
in
administering
a
successful CRA program.
20. (30)

When assessing CRA performance, do the financial
supervisory agencies consider a financial institutions'
lending, investment, development and general support
activities outside of the institution's delineated
community?
In
general,
the
assessment
of
an
institution's
performance under CRA focuses on its record in helping to
meet credit needs within its delineated community. The
agencies are aware, however, that financial institutions
may organize, support, or use a wide variety of programs,
organizational mechanisms or intermediaries that help
finance such things as low- and moderate-income housing,
small and minority businesses and other community
projects on a statewide, regional or even national basis.
Although these programs or mechanisms may be available to
support loans and investments within an institution's
delineated community, they often provide the bulk of
their financial support in other geographical areas.
Under certain circumstances, the agencies will give
positive consideration in assessing CRA performance for
active participation by a financial institution in such
programs and mechanisms, even where most or all of the
financing provided may ultimately benefit low- and
moderate-income borrowers or neighborhoods located
outside of the institution's delineated community.
In
determining whether
and to what extent positive
consideration will be given, the agencies assess the
activities undertaken in the context of an institution's
overall CRA program. Where such participation augments
or complements an overall CRA program that is directly
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responsive to the credit needs in an institution's
delineated community, it will be considered favorably in
reaching an overall CRA conclusion.
However, such
activities and involvements will be insufficient to
compensate
for an otherwise deficient record of
addressing the credit needs of an
institution's
delineated community.
Examples of such programs or intermediary organizations
(other than traditional direct lending) are:
o

Lending consortia or loan pools that provide
community development financing and technical
assistance for low- and moderate-income housing,
small and minority business development, or other
neighborhood revitalization projects;

o

Multi-investor community development corporations;

o

Limited partnerships that
moderate-income housing;

o

Secondary market corporations and programs which
explicitly
target
loans
for
lowand
moderate-income
housing,
small
and
minority
businesses, or small farms;

o

Quasi-public housing, community development or
economic development finance corporations in which
state or local government agencies participate,
often
with
financial
institutions
or
other
contributors;

o

State bond programs for housing,
economic development, or public
projects;

o

Public or private intermediaries which provide loan
guarantees or other credit enhancements used by
financial
institutions
to
support
community
development lending and investment;

o

Capital investment, loan participation and other
co-ventures
undertaken
with
minority
and
women-owned financial institutions.

invest

in

low-

and

community and
infrastructure

These and similar vehicles help institutionalize and
support community development lending and investment. In
general,
they enhance the capacity of financial
institutions to help meet community credit needs,
including
those
of
lowand
moderate-income
neighborhoods.

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21.

(20)

May an institution use a policy of making certain loans
only to existing customers, without adversely affecting
its CRA performance?

In examining an institution, the financial supervisory
agencies
will
pay
particular
attention
to
any
restrictions placed on the availability of those types of
credit that an institution has indicated on its CRA
Statement that it would extend in its local community.
Examiners will focus on whether any such restrictions
have or would have a significantly greater impact on lowand moderate-income neighborhoods.
In every case,
examiners will consider:
o

The business rationale for adopting a particular
policy;

o

Whether other policies would serve the
business purpose with less adverse impact;

o

The relative ease of becoming a customer eligible
for credit under the restriction;

o

Whether the institution has adopted a policy of
limiting certain loans to customers as a temporary
response to tight money conditions or as a
permanent policy.

same

Loans available on any restrictive basis should be listed
on the CRA Statement with the restrictions noted.
However,
the agencies recognize that institutions
occasionally make certain specialized loans to "good"
customers. This type of spot lending activity need not
be listed on the CRA Statement.
Any restrictive lending policies or practices found to be
discriminatory on a prohibited basis will have a
substantial adverse impact on an institution's CRA
performance.
22.

(new)

What criteria do examiners use to determine whether a
director's, officer's or employee's outside activities
contribute to an institution's CRA performance?
What
criteria do the examiners use to determine whether an
institution's charitable donations contribute to its CRA
performance?

To contribute to an institution's CRA performance, an
activity or charitable donation should fall into one of
the following categories:
o

It resulted in the sharing of information about the
institution's lending services;

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o
o

The activity or charitable donation assisted in
providing credit services or information to the
community;

o
(new)

Community members were informed about how to get or
use credit;

o

23.

Information was obtained regarding the community's
credit needs;

The activity or donation assisted
development or redevelopment effort.

a

community

some
parties
have
commented
that
the
financial
supervisory agencies emphasize assessment criteria
relating to the CRA process over results such as lending.
What is the current emphasis of the agencies in their
supervisory efforts?
The principal focus of the financial supervisory agencies
and the activity most encouraged through an examination
continues to be lending and other activities within the
community that result in extensions of credit that help
meet identified credit needs. The answers to Questions
20 and 30 in this series also address this issue.
A
conclusion that performance is satisfactory or better
generally requires that the community delineation is
reasonable; that credit extensions are consistent with
the capacity of the institution and the identified needs
of the community; and that lending activity reflects a
reasonable penetration of all segments of the community,
including its low- and moderate-income neighborhoods.
When the above characteristics are not found to be
present in an institution's reinvestment record, the
underlying causes identified by the financial supervisory
agencies' examiners are likely related to deficiencies in
the institution's community reinvestment process. Agency
recommendations for improving the institution's CRA
performance usually involve:
o
o
o
o
o

Oversight by the board of directors and management;
The establishment of goals and objectives;
Community
outreach,
product
development
and
marketing;
Management and employee training;
Regular monitoring of the institution's progress
and performance.

Process-oriented
corrective
measures
should
be
implemented to make the institution more responsive to
local credit needs on a regular, ongoing basis. However,
no level of emphasis by an institution on the CRA process
can make up for a seriously deficient record of lending
and investment in the community.
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24.

(7)

What is a "small" business or farm?

For CRA purposes, the term "small" refers to the absolute
size of the business and farm rather than the relative
size in their industries. Because a major concern of CRA
is that all creditworthy borrowers have reasonable access
to loans from banks and savings associations, small
businesses and farms generally are viewed as those which
do not have access to regional and national credit
markets and must rely on their local lending institutions
for credit.
25.

(31)

What effect would an institution's selling loans it has
originated within its delineated community have on the
institution's CRA performance?

The agencies have found that the sale of loans in the
secondary market enhances CRA performance where such
sales enable an institution to recycle funds for
origination of additional loans within its delineated
community.
Where loans are part of a comprehensive CRA program
designed to ascertain and help meet credit needs within
the institution's delineated community, such loans
clearly help demonstrate CRA performance, whether or not
they are ultimately sold on the secondary market.
To
ensure that appropriate consideration under CRA is given
for loans sold, however, institutions should consider
retaining information concerning when and where the loans
were originated.
26.

(27)

To what extent will a "regulated financial institution"
which
is
subject
to
statutory
and/or
regulatory
constraints that prevent it from operating as a "full
service" financial institution be expected to meet CRA
performance requirements?

The institution has an affirmative obligation to seek out
ways consistent with its permitted activities to assist,
directly or indirectly, in helping to meet the credit
needs identified in its local community, with appropriate
attention to low- and moderate-income neighborhoods. As
indicated in the answers to Questions 20 and 21 of this
series, many services other than direct credit services
can be developed to benefit the local community in a
manner consistent with the intent of the CRA. Currently
the financial supervisory agencies are reviewing the
applicability of CRA to financial institutions that have
statutory restrictions placed on their loan or deposit
activities.
The CRA implementing regulations of the Federal financial
supervisory agencies include twelve factors to be
considered in assessing CRA performance.
Every
- 15 -

institution's overall CRA performance record should
compare favorably, consistent with its resources and
capabilities, with the issues expressed through these
twelve factors. A financial institution's inability to
provide specific credit products or services because of
statutory or regulatory limitations does not preclude a
positive CRA performance evaluation.
An institution's board of directors should assure that
CRA performance is an integral part of the institution's
business strategy. Expected activities will include, at
minimum, meeting the basic obligations to define a local
community, to ascertain the credit needs within that
community, and to demonstrate responsiveness, directly or
indirectly, to the needs identified.
27. (28)

What do the financial supervisory agencies expect from
institutions that have voluntarily limited or specialized
their services to target particular markets?
Such an institution has the same continuing and
affirmative obligation as a "full service" institution to
help meet the credit needs of its entire local community,
consistent with safe and sound operations.
An
institution's self-imposed service or market limitations
may not be used as justification for a failure to define
its local community or to help, directly or indirectly,
meet the credit needs within that community, including
low- and moderate-income neighborhoods.
Whether or not an institution operates as a "full
service" entity is not a determining factor in evaluating
its CRA performance. Every institution should be able to
demonstrate
that
it
is
fulfilling
its
CRA
responsibilities, either within the context of its chosen
service specialties or in other ways. The final measure
of CRA performance is in the credit benefits accruing to
the institution's local community as a result of that
institution's activities, irrespective of the vehicle by
which those credit benefits are provided.

28. (18)

How will the agencies "encourage" institutions to help
meet the credit needs of their local communities?
Encouragement will be provided in four ways.
First,
within the limits of the agencies' resources, their
staffs will provide information and technical assistance
and will meet with representatives of industry and the
management of individual institutions to explain the CRA,
regulations, and examination procedures. This exchange
of information will help institutions understand the
purposes of the CRA and how the financial supervisory
agencies implement the act. Second, as part of each CRA
examination, financial supervisory agency staff will
discuss with management their findings about the
- 16 -

institution's CRA performance.
Where appropriate, the
financial supervisory agency staff may suggest ways in
which the institution can improve its performance.
Third, in decisions on applications, where CRA is a
material factor, the agencies will publicly comment on an
institution's record of performance.
Fourth, the
financial
supervisory
agencies
believe
that
the
availability the public CRA Performance Evaluations serve
as an additional encouragement for institutions to help
meet local credit needs on an ongoing basis.
THE EFFECT OF AN INSTITUTION'S CRA PERFORMANCE ON APPLICATIONS
29.

(22)

What sanctions are available to the financial supervisory
agencies under the CRA?

A poor CRA performance record may result in denial of
corporate application.
The financial supervisory
agencies may also use the full range of their enforcement
powers to ensure compliance with the requirements of the
CRA regulation, including preparing a CRA Statement,
maintaining public comment files and making them
available, and providing the CRA Notice.
In addition,
widespread, repeat/uncorrected, or otherwise substantive
violations of anti-discrimination laws and regulations
are significant adverse factors in an institution's CRA
performance record, and they will prompt enforcement
actions under the Equal Credit Opportunity Act, Fair
Housing Act, or other applicable fair lending rules.
30.

(23) Are applications for
covered by the CRA?

electronic

deposit

facilities

Generally, such applications are covered. The financial
supervisory agencies have different rules regarding the
processing of applications for electronic deposit
facilities, and institutions should, therefore, consult
their financial supervisory agency before filing.
31.

(25) How does the CRA affect applications by banks and savings
associations that are subsidiaries of holding companies?

Applications by a bank or savings association that is a
subsidiary of a holding company will be treated by the
financial supervisory agencies in the same manner as
those filed by any bank or savings association. Only the
CRA record of the applying bank or savings association
and the activities of their subsidiaries will be taken
into account.
The bank or savings association may
request, however, that the financial supervisory agency
consider the contribution of any of the bank's or savings
association's non-depository affiliates in helping to
meet the credit needs of the community or communities of
the applicant bank or savings association. For example,
- 17 -

if the applicant bank or savings association has an
affiliate community development corporation operating in
the same community as the applicant, the applicant may
ask that the contributions of that corporation in helping
to meet the credit needs of the particular community be
considered by the financial supervisory agency in
assessing the overall CRA record of the applicant.

# # # #

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Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102