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F ederal
reserve
Bank
DALLAS, T E X A S
of
Dallas
75222
C ircular No. 80-8
January 17, 1980
REGULATION BB - COMMUNITY REINVESTMENT ACT
INFORMATION STATEMENT
______
TO STATE MEMBER BANKS
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
Printed on the following pages is the Board's p ress release and infor
mation statement for the guidance of those state member banks affected by the
Community Reinvestment Act. Questions concerning this information should be
directed to our Consumer Affairs Section of the Bank Supervision and Regulations
Department, Ext. 6171.
Sincerely yours,
Robert H. Boykin
First Vice President
Banks and others are encouraged to use the following incoming W A T S numbers in contacting this Bank:
1-800-442-7140 (intrastate) and 1-800-527-9200 (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)
FEDERALRESERVEpressrelease
For imnediate release
January 3, 1980
The Federal Reserve Board today issued an information statement for
the guidance of those affected by the Community Reinvestment Act.
The CRA requires the Board and other federal supervisors of financial
institutions to encourage banks and other lenders to meet the credit needs of
the local communities where they are chartered, within the bounds of safe and
sound banking.
The federal regulators are required by the Act to assess the
records of institutions they supervise in meeting the credit needs of their
communities and to take their records into account when they are acting on
applications from lenders to expand their activities.
The CRA is aimed particularly at encouraging financial institutions
to give special attention to the needs of low and moderate income areas in
meeting the credit needs of the communities in which they operate.
In
October 1978 the Federal Reserve, together with other federal supervisors of
financial institutions issued regulations to implement the CRA.
The Board's statement is directed to State chartered conanercial banks
that are members of the Federal Reserve System, and to bank holding companies.
The Board's statement has been forwarded to the Federal Financial Institutions
Examination Council for its consideration.
In issuing its statement the Board said that it is working to simplify
its procedures for handling applications that are protested by community groups^
or others, on CRA grounds.
The Board said that it
...expects to develop a procedural guide for members of
the public participating in CRA matters. The procedures
are, of necessity, subject to change as more experience
is acquired, and all procedures will be coordinated as
far as possible, with those adopted by other federal
agencies charged with supervision of financial institutions.
2Meanwhile, che Board said, it has adopted a policy of encouraging
meetings between applicants and protesting parties to help solve problems by
facilitating connuinication, in connection with the Board's view that communi
cation with community members is an Important part of a bank's efforts to
ascertain the community's credit needs.
The Board noted that it has received protests suggesting that a
lending
institution has a poor lending record because it is not returning
as
much
in the form of loans to comnunity members as it receives in deposits
from
that
community.
In this connection, the Board stated:
Although CHA is directed at the problem of meeting sound
comnunity credit needs, it was not intended to establish
a regulatory influence on the allocation of credit. In
implementing the Act the Board has acted on the belief
that banks are in the best position to assess the credit
needs of their own local communities and the Board believes
that meetings with community groups can be an integral
part of the process....
The Board believes that there are many reasons why a
particular neighborhood may generate more deposits than
loan requests, or more requests than deposits, and that
disparity in a particular local area between credit
granted and deposit totals is not prima facie evidence
of discrimination....
However the Board views as a serious matter disparities
in lending to different areas that do not appear to be
fully attributable to safety and soundness considerations
or to factors beyond a bank's control.
The Board's statement included these other principal points:
— When faced with evidence of such disparities the Board will inquire
closely into the bank's efforts to ascertain credit needs and to make the
comnunity aware of its credit services and into any policies or practices that
may discourage credit applications from, or discriminate against, parts of the
bank's comnunity.
-3 — The Board expects banks to offer throughout their communities the
£ypes of loans they say in their CRA statement that they offer.
--The Board will give weight to concerted efforts by lenders to
improve low and moderate income areas of communities.
— In some cases the Board may give weight to commitments for future
action, as it has long done in considering what effect the approval or
disapproval of an application would have on the banking convenience and needs
of a community.
— Where this is done, the Board, in considering future applications,
will review a bank's record closely to determine if the bank is meeting its
commitments.
--Just as the Board expects that a bank will communicate responsibly
with all segments of its community it also expects that comnunity organizations
filing protests will investigate complaints and document them.
— With respect to the Federal Reserve's policy of trying to improve
communcation between lending institutions and their communities by bringing
them together to consider protests:
--Even if a protest is withdrawn, the Board has
an obligation to consider the applicant's CRA record.
--Any decision to negotiate is up to the parties involved.
--The Board will not necessarily approve an agreement
between the parties.
— The Board does not endorse agreements to allocate credit.
The Board said it welcomes suggestions for the improvement of its
processes for handling CRA protests and other matters.
The Board's statement is attached.
-
0
-
FEDERAL RESERVE SYSTEM
COMMUNITY REINVESTMENT ACT
INFORMATION STATEMENT
The Board of Governors of the Federal Reserve System is issuing
this statement for the guidance of applicants, community groups, and
other persons interested in the Community Reinvestment Act of 1977 ("CRA"
or "the Act"). On the basis of its experience during the first year
of operation under CRA, the Board is working to simplify its procedures
for protested applications, and it expects to develop a procedural guide
for members of the public participating in CRA matters. The procedures
are, of necessity, subject to change as more experience is acquired,
and all procedures will be coordinated as far as possible with those
adopted by the other federal agencies charged with supervision of financial
institutions.
CRA was enacted against a background of concern for unfair
treatment of prospective borrowers and unwarranted geographic differences
in the pattern of lending. The Act requires the Board to encourage
banks to meet the credit needs of the local communities in which they
are chartered consistent with the safe and sound operation of those
banks, to assess the banks' records of meeting those credit needs, and
to take their records into account in the Board's evaluation of various
applications to expand the banks' activities or those of their parent
holding companies.
Although CRA is directed at the problem of meeting sound community
credit needs, it was not intended to establish a regulatory influence
on the allocation of credit. In implementing the Act, the Board has
acted on the belief that banks are in the best position to assess the
credit needs of their own local communities and the Board believes that
meetings with community groups can be an integral part of the process.
The first assessment factor in the Board's CRA regulation stresses a
bank's activities to ascertain the credit needs of its community, including
comnunication with comnunity members. More recently the Board has adopted,
as a regular procedure for applications that are protested on substantive
CRA grounds, a policy of encouraging meetings between applicants and
protestants, one purpose of which is to facilitate communication between
the parties.
Several community organizations have submitted materials to
the Board suggesting that particular lending institutions have poor
lending records because they do not return to particular neighborhoods
in loans as much as they accept from those neighborhoods in deposits.
The Board believes that there are many reasons why a particular neighborhood
-2 -
may generate more deposits than loan requests, or more requests than
deposits, and that disparity in a particular local area between credit
granted and deposit totals is not prima facie evidence of discrimination.
The Board is more concerned with the lender sensitivity to the needs
of each area.
Banks may sometimes fail to recognize the credit needs of
creditworthy borrowers in the banks' communities. For example, in its
investigations to date, the Board has found some evidence of disparity
in banks' housing-related lending to low- and moderate-income neighborhoods
compared with higher income areas. Factors affecting housing demand,
and considerations of safety and soundness do not appear to account
fully for the extent of these disparities.
The Board expects banks to offer types of credit listed on
their CRA statements throughout their communities. In assessing banks'
records, the Board views favorably the record of a bank that has defined
its community reasonably and that offers credit that appears to help
meet credit needs in its entire community. The Board will also give
favorable weight to bank leadership in concerted efforts to improve
low- and moderate-income areas in their communities. However, the Board
views as a serious matter disparities in lending to different areas
that do not appear to be fully attributable to safety and soundness
considerations or to factors beyond a bank's control. When faced with
evidence of such disparities, the Board will inquire closely, both into
the bank's efforts to ascertain credit needs and to make the community
aware of its credit services, and into any policies or practices of
the bank that may discourage credit applications from, or discriminate
against, parts of the bank's community.
In acting upon applications covered by CRA, the Board considers
a bank's CRA record as a part of the convenience and needs aspect to
be evaluated along with other relevant factors. Following its long
standing policy, the Board may in some circumstances give weight to
commitments for future actions as part of its consideration of convenience
and needs. Such commitments are not viewed as part of the CRA record
but may be weighed with it, and they are considered an important aspect
of the Board's role in encouraging improved performance. When such
commitments are offered by an applicant to outweigh adverse aspects
in a CRA record, the Board will consider the likelihood that they will
be accomplished, and in future applications and examinations will review
closely an applicant's performance on previous CRA commitments.
The Board has been working to simplify and streamline its
procedures for protested applications, and expects to produce a guide
for community organizations that are interested in CRA matters. In
the meantime System staff is available to advise parties on procedural
requirements. Just as the Board expects banks to communicate responsibly
-3 -
with all segments of their community, it expects community organizations
to investigate and document their complaints, and to bring those complaints
to the attention of the banks involved before protesting an application.
The Board further expects all parties to an application to observe the
Board's procedural rules, and cautions all parties against ex parte
communications, private communications to Board Members without other
parties present. Direct communication on protested cases with Members
of the Federal Reserve Board must be in writing and will be part of
the record.
As a part of its revised procedure when a protest is considered
substantive, the Board now asks that applicants and protestants meet
together with Reserve Bank staff to attempt to clarify the issues between
them. These meetings have been useful in helping the staff to plan
the direction of its investigation and to identify areas or questions
meriting special attention. In addition, where particular differences
among the parties have arisen from misunderstanding of the facts or
of another party's position, these meetings have helped resolve those
differences.
Of five protested applications that the System has acted upon,
three protests have been resolved by negotiation, and agreements reached
in negotiations played a role in the Board's decision on a fourth.
There cure, however, several aspects of this process that merit special
attention. First, the withdrawal of a protest does not alter the Board's
obligation to assess the CRA record of an applicant carefully. Second,
while the Board reasonably expects all parties to use these meetings
to explain and clarify their positions, any decision to negotiate is
entirely within the parties' discretion. Finally, even if parties agree,
the Board need not approve their agreement.
In particular, the Board does not endorse agreements to allocate
credit. The Board is aware that many banks have on their own initiative
adopted special purpose credit programs, or pilot programs to test new
credit offerings. The Board does not wish to discourage these efforts.
However, the Board will closely scrutinize any agreements to ascertain
that they are not inconsistent with the safety and soundness of the
bank involved, and do not establish a preference for credit extensions
inconsistent with evenhanded treatment of borrowers throughout the community.
In designing procedures to accomplish the Act's objectives,
the Board appreciates the useful comments it has received from banking
organizations and community groups, and it welcomes additional suggestions.
The Board believes that the applications process can encourage communication
between banks and their communities and help insure that sound credit
needs are met within the capacity of depository lending institutions.
Board of Governors of the Federal Reserve System, January 3, 1980.
Theodore E. Allison
Secretary of the Board
@FedFRASER