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federal reserve ban k of DALLAS, TE X A S Dallas 7S222 C irc u la r No. 78-98 lu ly 19, 1978 COMMUNITY REINVESTMENT ACT—PROPOSED REGULATIONS TO ALL STATE MEMBER BANKS, BANK HOLDING COMPANIES, AND OTHERS CONCERNED IN THE ELEVENTH FEDERAL RESERVE DISTRICT: P r in te d on th e following p a g e s is th e p r o p o s e d re g u la tio n implementing th e Community R einvestm e nt Act a s d r a f te d by the Board of G o v e rn o rs of th e Fed eral R e s e r v e S ystem , th e C o m ptro ller of the C u r r e n c y , the Federal Deposit I n s u r a n c e C o rp o ra tio n , a n d th e F e d e ra l Home Loan Bank Board. T h is re g u la tio n would implement th e Community R ein vestm ent Act of 1977 w hic h d i r e c t s th e a b o v e a g e n c ie s to e n c o u r a g e the institutions th e y r e g u la te to fulfill t h e ir c o n tin u in g obligation to h e lp meet th e c r e d i t n e e d s of t h e i r com munities . T h e re g u la tio n w as d r a f te d following a s e r i e s of h e a r i n g s a n d the r e c e ip t of s u b s ta n tia l am o unts of oral a n d w ritte n testim ony . T h e p r o p o s e d r e g u l a tion is d e s ig n e d to e n c o u r a g e in s titu tio n s to become a w a r e of th e full r a n g e of c r e d i t n e e d s of th e i r communities a n d to s ee k the v ie w s of all segm e n ts of t h e ir communities r e g a r d i n g those n e e d s . T h e p r o p o s e d r e g u la tio n , h o w e v e r, would not r e q u i r e in s titu tio n s to offer p a r t i c u l a r k in d s o r am ounts of c r e d i t . Comments on th e p r o p o s e d re g u la tio n should be d i r e c t e d to T h e o d o re E. A llison , S e c r e t a r y of the Board of G o v e r n o r s of th e Federal R e s e r v e System , 20th S t r e e t a n d C onstitution A v e n u e , N. W. , W ash ing ton , D .C . 20551. All m aterials sho uld b e s e n t in q u a d r u p l i c a t e a n d shou ld r e f e r to Docket No. R-0139. T h e d e a d l in e for r e c e i p t of comments is A u g u s t 15, 1978. Q uestions on the p r o p o s e d Community R einv estm e n t Act re g u la tio n should be d i r e c t e d e it h e r to R o bert L a w re n c e , Board of G o v e rn o rs of the Federal R e s e r v e S y ste m , (202) 452-3766, o r to the C o n su m e r Affairs Section of o u r Bank S u p e r v i s i o n a n d R egulation D e p artm en t a t Ext. 6171 o r 6181. S in c e re ly y o u r s , R ob ert H. Boykin F i r s t Vice P r e s i d e n t Banks and others are encouraged to use the following incoming W A T S numbers in contacting this Bank: 1 -8 00 -492 -440 3 (intrastate) and 1 -8 00 -527 -497 0 (interstate). For calls placed locally, please use 651 plus the extension referred to above. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) E x tr a c t F rom F ed e ral R e g is te r, V O L . 43, N O . 133, T u e s d a y , J u l y 1 1 , 1978 p p . 29918 - 29922 [6720-01] FEDERAL RESERVE SYSTEM [1 2 CFR Port 2 2 8 ] Com m unity R ein v estm en t A ct R egulation* J u n e 3 0 ,1 9 7 8 . AGENCIES: Board of Governors of the Federal Reserve System, Comp troller of the Currency, Federal De posit Insurance Corporation, and the Federal Home Loan Bank Board. ACTION: Proposed regulations. SUMMARY: These regulations would implement th e Community Reinvest m ent Act of 1977, which directs the named agencies to encourage the insti tutions they regulate to fulfill their continuing and affirmative obligation to help m eet the credit needs of their communities, including low- and mod erate-income neighborhoods, consist ent with safe and sound operation of such institutions, and to assess their record in doing so and take such as sessments into account when evaluat ing certain applications by such insti tutions. DATES: Comments must be received by August 15, 1978. ADDRESS: Please send four sets of comments to Theodore Allison, Secre tary to the Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW., Wash ington, D.C. 20551. All material sub mitted should refer to F.R.B. Docket No. R 0139. FOR FURTHER INFORMATION CONTACT: Robert Lawrence, Board of Gover nors of the Federal Reserve System: 202-452-3766; Alan Herlands, Comp troller of the Currency: 202-447 1177; Roger Hood, Federal Deposit Insurance Corporation: 202-389 4628; Nancy Feldman, Federal Home Loan Bank Board: 202-377-6443. SUPPLEMENTARY INFORMATION: The Board of Governors of the Feder al Reserve System, the Comptroller of the Currency, the Federal Deposit In surance Corporation, and the Federal Home Loan Bank Board (collectively referred to as “the Agencies”) propose this regulation to implement the Com munity Reinvestment Act of 1977 (“the CRA”). The CRA, which was en acted as title VIII of the Housing and Community Development Act of 1977 (Pub. L. 95-128), requires that in con nection with their examination of in stitutions in their jurisdiction, the Agencies assess each institution’s record of meeting the credit needs of its entire community, including lowand moderate-income neighborhoods, consistent with the safe and sound op eration of the institution. The CRA further requires that the appropriate Agency take that record into account in its evaluation of any application by the institution for a charter, deposit insurance, branch or other deposit fa cility, office relocation, merger, or ac quisition of bank or savings institution shares or assets. The agencies announced, in notices published in the F e d e r a l R e g i s t e r on January 25, February 21, and March 29, 1978 (43 FR 3370, 7243, and 13074), a series of hearings to be held around the country. The January 25, 1978, notice contained questions regarding issues raised by the CRA, and all the notices requested testimony and writ ten comments to aid the Agencies in drafting regulations. Substantial amounts of oral testimony and written submissions were accepted and re viewed and much of that material is reflected in the following proposals. It is the purpose of the CRA to re quire the Agencies- to encourage insti tutions to help m eet the credit needs of their local communities consistent with safe and sound operations. The Agencies believe that it is more likely that community credit needs which can be met on a safe and sound basis will be met when members of the com munity are aware of the availability of credit, the lending institutions are well informed about community credit needs, and such institutions make a sincere effort to m eet those needs. Accordingly, the proposed regula tions are designed to encourage insti tutions to become aware of the full range of credit needs of their commu nities and to seek the views of all seg ments of their communities regarding those needs. Institutions are encour aged to offer the types of credit and credit-related services that will meet the credit needs of their communities. The regulations, however, would not require institutions to offer particular kinds or amounts of credit. It is the purpose of the proposed regulations to encourage each institution to help m eet the credit needs of its entire community while preserving to every institution the flexibility necessary to operate in a safe and sound manner, and to serve the convenience and needs of its community effectively and imaginatively. The Agencies’ proposed regulations, which are presented together for con venience, are identical in their sub stantive provisions, but contain proce dural variations. An explanation of the provisions of the regulations, how they operate, and why they were chosen, is set forth below. Authority. Each Agency’s regulation sets forth that Agency’s authority to adopt its regulations. Purpose. The statem ent of purpose Is adopted from the CRA. A discussion of this purpose is set forth above. Community. The Agencies believe that there are many factors which de termine a lender’s community, includ ing the institution’s size, geographic factors, economic forces, and local tra dition. No single definition or rigidly applied rule, therefore, would be ap propriate to all communities and insti tutions. Accordingly, the proposed reg ulation would direct each institution to delineate its entire community with the aid of broad guidelines. The delin eation would be available to members of the public who could offer their comments and suggestions to the insti tution and to the institution's supervi sory agency. Agency examiners would review each institution’s delineation and any community comments to insure that no areas, including lowand moderate-income neighborhoods, are unreasonably excluded from the delineation, and that the delineation is not so broad that the institution fails to focus on its local community. The term “office”, as used in the regulation, includes electronic deposit facilities unless it is otherwise modi fied. C o m m u n it y R e in v e s t m e n t A ct S tatem ent The board of directors of each insti tution would be required to adopt a Community Reinvesment Act (“CRA”) statement. The CRA statem ent would include the institution’s delineation of its community and a list of the types of credit that the institution would offer to members of its communities. The statement would be required to be made available to the public. Where an Institution has offices serving more than one local community, it would delineate those communities and could adapt its statem ent to the needs of each community. The purposes of requiring a state ment would be to insure that each in stitution’s board of directors considers the purpose of the CRA and what their institution’s response will be, to inform the community of the types of credit that the institution offers, and to aid the agencies’ examiners in as sessing each institution’s record. If an institution believes that the purposes of the CRA statem ent would be better served, it could incorporate additional material, such as a description of how its efforts, including special programs, relate to meeting types of credit needed by its community. The Agencies believe that institu tions are aware of the areas they serve and have well-articulated internal loan policies. The Agencies, therefore, be lieve that adoption of a CRA state ment would not be burdensome to in stitutions. However, the Agencies invite particular comment on whether institutions with assets of less than (10 million located outside standard metropolitan statistical areas should be exempted from the written state ment requirement unless the Agencies impose it as a supervisory requirement in individual cases. Institutions would be required to review their statements at least annu ally. They would be encouraged to review their statem ents in light of community comments and their expe rience with offering various types of credit, and to provide, as part of the statem ent, a public accounting of their efforts to m eet community credit needs. To aid Agency examiners and the public, each institution would be re quired to keep a file of all CRA state ments in effect over the previous two years and of all public comments re ceived during that period. Agency ex aminers would review the statem ent and the file in connection with their assessment of each institution’s record. A s s e s s in g the R ecord The CRA requires the Agencies to assess each institution’s record of meeting the credit needs of its entire community including low-*and moder ate-income neighborhoods. The pro posed regulation would provide for that assessment and set forth a list of factors that the Agencies would con sider in making the assessment. The list is only intended to be indicative of the evidence that the Agencies would consider. Institutions may serve their communities in ways not reflected in the list and need not adopt particular activities specified in the list. Examination procedures, to be issued later by the Agencies, will be publicly available. The Agencies will consult with State supervisory au thorities regarding the assessment process. E ffect on A p p l ic a t io n s The CRA requires the Agencies to take an institution’s record into ac count in acting upon certain applica tions involving that institution. This section would implement that require m ent and list the particular applica tion to which each Agency’s regulation applies. The Agencies would consult with State supervisors regarding appli cations involving State-chartered insti tutions. The regulations of the Federal Re serve Board and the Federal Home Loan Bank Board would provide that those Agencies may consider the credit-granting record of certain sub sidiaries of a holding company that is making an application covered by the CRA to the Agency. The Agencies are considering modifi cations to their existing application procedures concerning public notice and opportunity to be heard, with re spect to applications covered by the CRA. Accordingly, the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the Fed eral Deposit Insurance Corporation, and the Federal Home Loan Bank Board propose to amend 12 CFR by adding Parts 25, 228, 345, and 563e, to read as set forth below. PART 228— COMMUNITY REINVESTMENT S6C 228.1 A u th o r ity . 228.2 P u rp o s e s . 228.3 D e lin e a tio n o f e n tir e c o m m u n ity . 228.4 C o m m u n ity R e in v e s tm e n t A c t s t a t e m e n t. 228.5 A ssessin g t h e re c o rd . 228.6 E ff e c t o n a p p lic a tio n s . A u t h o r i t y : C o m m u n ity R e in v e s tm e n t A c t o f 1977 ( T itle V III, P u b . L. 95-128, 91 S ta t. 1147 (12 U .S .C . 2901 e t se q .)); 12 U .S .C . 321, 325. 1814, 1816, 1828, 1842). § 228.1 Authority. The Board of Governors of the Fed eral Reserve System issues this part to implement the Community Reinvest ment Act. (Title VIII of Pub. L. 95 128; 91 Stat. 1147.) The regulations comprising this part are issued under the authority of the Community Rein vestment Act and under the provisions of the United States Code authorizing the Board to conduct examinations of State-chartered banks that are mem bers of the Federal Reserve System (12 U.S.C. 325), to conduct examina tions of bank holding companies and subsidiaries thereof (12 U.S.C. 1844), and to consider applications for do mestic branches by State member banks (12 U.S.C. 321), for Federal D e posit Insurance in connection with ap plications for membership in the Fed eral Reserve System by State banks (12 U.S.C. 321, 1814, 1816), for merger in which the resulting bank would be a State member bank (12 U.S.C. 1828) and for formation of, acquisitions of banks by, and mergers of, bank hold ing companies (12 U.S.C. 1842). § 228.2 Purposes. The purposes of this regulation are to require State member banks to demonstrate that their offices serve the convenience and needs of their communities; to provide guidance to State member banks as to how the Board will assess their records in satis fying their continuing and affirmative obligations to help meet the credit needs of their local communities, in cluding low- and moderate-income neighborhoods, consistent with safe and sound operation of such banks; ana to provide for taking into account those records, and those of other per tinent institutions, in connection with certain applications. § 228.3 Delineation of entire community. (a) Each State member bank shall prepare, and at least annually review, a delineation of the geographic area(s) comprising its entire community. The use of maps is encouraged. (b) A bank’s entire community may consist of more than one local commu nity. More than one office of an insti tution may serve the same local com munity. Banks shall delineate local communities consisting of the contigu ous areas surrounding each office or group of offices, without excluding low- and moderate-income neighbor hoods. In preparing— (1) Exisitng boundaries such as those of Standard Metropolitan Statis tical Areas (SMSA’s) or counties may by used and, where appropriate, por tions of adjacent areas may be includ ed. A bank may make adjustments in the case of areas divided by State bor ders or significant geographic barriers, or areas which are extremely large or of unusual configuration. In addition, a small bank may delineate those por tions of SMSA's or counties which it reasonably may be expected to serve. (2) A bank may use its effective lend ing territory, meaning that area or areas around each of its offices where it makes a substantial portion of its loans and all dther areas equidistant from its offices as those areas, with such adjustments as may be made under paragraph (b)(1) of this section. (3) A bank may use any other rea sonably delineated area which meets the purposes of the Community Rein vestment Act (CRA), and does not ex clude low- and moderate-income neigh borhoods. § 229.4 Community Reinvestment Act statement. (a) Within 90 days after the effec tive date of this part, the board of di rectors of each State member bank shall adopt a clear and concise Com munity Reinvestment Act (CRA) statement and shall provide in each of its offices having interior public space, a notice that a copy of the current statement (and, if the statement is drawn separately for local communi ties, the portion pertaining to such of fice's community) is readily available on request. The notice shall also indi cate that interested persons may submit to the bank or to the Federal Reserve bank for the district where the State member bank is located, with officials' titles and addresses pro vided, written comments pertaining to the information contained in the statement. In addition, a CRA state ment shall have been adopted by the time anv of the aDDlications enumer ated in § 228.6(a) is submitted. (b) The CRA statement shall include at least the following: (1) The delineation of the entire community and local communities, if any, as adopted by the State member bank; and (2) A list of specific types of credit within certain categories, such as, resi dential loans for 1 to 4 dwelling units, residential loans for 5 dwelling units and over, housing rehabilitation loans, home improvement loans, small busi ness loans, community development loans, commercial development loans, and consumer loans, which the bank is prepared to extend to its entire com munity or local communities. (c) The statement may contain any additional information the bank con siders helpful in describing how Its ef forts, including special programs, relate to meeting types of credit needed by'its community. (d) Each bank is encouraged to pro vide, as part of its CRA statem ent, a periodic public accounting of its record of meeting community credit needs. (e) The bank’s board of directors shall review each CRA statem ent at least annually, and shall approve any material changes whenever made. Such actions shall be noted in its min utes. (f) The bank shall maintain a public file of all CRA comments received for, at a minimum, the two most recent calendar years, and all CRA state ments in effect during those years. § 228.5 Assessing the record. In connection with its examination of a State member bank, the Board shall assess the record of the bank in helping to m eet the credit needs of its entire community, including low- and moderate-income neighborhoods, con sistent with the safe and sound oper ation of the bank. The Board will review the bank’s CRA statem ent and marketing and lending policies and practices to determine whether they are designed to help meet those needs, and assess its record of performance. The Board will consider the following factors in assessing a bank’s record; (a) Activities conducted by the bank to ascertain the credit needs of its entire community; (b) The extent to which the bank has attempted to consult with mem bers of local communities on the bank’s plans and policies relating to credit services offered to those com munities; (c) The extent and effectiveness of the bank’s marketing programs and special services to make members of the community aware of the credit services offered by the bank; (d) Evidence of discouragement of applications for types of credit set forth in the bank’s CRA statement; (e) The extent of participation by the bank's board of directors in formu lating and reviewing the bank’s poli cies and performance with respect to the Community Reinvestment Act; (f) The geographic distribution of the bank's loans; (g) The bank's participation, includ ing investments, in Government-spon sored local community development projects or other local community re development programs; (h) The bank’s origination of resi dential mortgage loans, housing reha bilitation loans, home improvement loans, commercial real estate loans, and similar loans within its entire community, or the purchase of such loans originated in its community; (i) The bank’s participation in govem m entally insured, guaranteed, or subsidized housing or small business loan programs; (j) The bank’s history of prohibited discriminatory or other illegal credit practices, if any; (k) The bank’s history of opening and closing offices and providing ser vices at offices; (1) The bank’s history of lending to both existing community members and new residents of the community; (m) The bank’s ability to m eet var ious community credit needs based on its financial condition, size, legal im pediments, and local economic and other factors; and (n) Such other factors as may, in the Board’s judgment, reasonably bear upon the extent to which the bank is helping to m eet the credit needs of its entire community. § 228.6 Effect on applications. (a) In considering any application: (1) For membership in the Federal Re serve System where such membership would confer Federal deposit insur ance on a bank, (2) by a State member bank for the establishment of a do mestic branch or other facility that would be authorized to receive depos its, (3) by a State member bank for the relocation of a domestic branch office, (4) for merger, consolidation, acquisi tion of assets or assumption of liabil ities if the acquiring, assuming, or re sulting bank is to be a State member bank, (5) to become a bank holding company, and (6) by a bank holding company to acquire ownership or con trol of shares or assets of a bank, or to merge or, consolidate with any other bank holding company, the Board will take into account, among other factors it considers, the record of the bank or, in the case of an application by a bank holding company, each of its subsidi ary banks, in meeting the credit needs o f its entire community including lowand moderate-income neighborhoods, consistent with the safe and sound op eration of such institution. ( b ) In the case of each application for m e m b e r s h i D that would confer Federal deposit insurance, each appli cation by a State member bank, and each application by a bank holding company with a State bank subsidiary, the Board will consider any views ex pressed by the respective State bank supervisors as to whether the Statechartered banks involved have been serving the credit needs of their entire communities, including low- and mod erate-income neighborhoods, consist ent with the safe and sound operation of such institutions. (c) At the time an application for membership that would confer Feder al deposit insurance is made, the appli cant shall submit to the Board a pro posed CRA statem ent conforming to the requirements of § 228.4. (d) At the request of an applicant, the record of nonbanking subsidiaries of bank holding companies in meeting the credit needs of communities served by their affiliated banks may be in cluded in the Board’s consideration of applications by State member banks that are subsidiaries of such bank holding companies and by such bank holding companies. • • * * * Board of Governors of the Federal Reserve System, June 30, 1978. T h e o d o r e E. A l l i s o n , Secretary of the Board.
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