Full text of Enforcement of the Community Reinvestment Act : Hearing Before the Subcommittee on Consumer and Regulatory Affairs of the Committee on Banking, Housing, and Urban Affairs, United States Senate, One Hundred First Congress, First Session on the Serious Complaints from Consumer Groups and Financial Institutions About the Regulatory Enforcement of the CRA, July 31, 1989

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

Y4 .B 85/2 :S. hug. 101-491
S. HRG. 101-491

ENFORCEMENT OF THE COMMUNITY

REINVESTMENT ACT

HEARING
BEFORE THE

SUBCOMMITTEE ON CONSUMER AND
OF THE

COMMITTEE ON

BANKING , HOUSING , AND URBAN AFFAIRS
ONE HUNDRED FIRST CONGRESS
FIRST SESSION
ON

THE SERIOUS COMPLAINTS FROM CONSUMER GROUPS AND FINANCIAL
INSTITUTIONS ABOUT THE REGULATORY ENFORCEMENT OF THE CRA

JULY 31 , 1989

Printed for the use of the Committee on Banking, Housing, and Urban Affairs

PENNSYLVANIA STATE

MAR 3 0 1990
DOCUMENTS COLLECTION
U.S. GOVERNMENT PRINTING OFFICE
22-155

WASHINGTON : 1990
For sale by the Superintendent of Documents, Congressional Sales Office

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
DONALD W. RIEGLE , JR. , Michigan , Chairman

ALAN CRANSTON, California

SUBCOMMITTEE ON CONSUMER AND REGULATORY AFFAIRS
ALAN J. DIXON, Illinois, Chairman
BOB GRAHAM, Florida

( II )

!

CONTENTS
MONDAY, JULY 31 , 1989
Page

Opening statement of Senator Dixon .

Griffith L. Garwood, Director of Consumer and Community Affairs, Federal

COCO
OSA
OOO

WITNESSES

3

18

25

27

33

46
139

.......

72

/

IV
Page

Janice M. Smith, Director of Office of Consumer Affairs, Federal Deposit
88

98

113

ENFORCEMENT OF THE COMMUNITY

MONDAY, JULY 31 , 1989

U.S. SENATE,

COMMITTEE ON BANKING , HOUSING , AND URBAN AFFAIRS,
SUBCOMMITTEE ON CONSUMER AND REGULATORY AFFAIRS,

OPENING STATEMENT OF SENATOR DIXON
Senator Dixon. This subcommittee meeting will come to order.

1

2

short and quite superficial, and these were reports that regulators
selected to show to us.

-

3

STATEMENT OF GRIFFITH L. GARWOOD, DIRECTOR OF CON.

MANDATE UNDER THE CRA

Our mandate under the CRA is to encourage banksto help meet
the credit needs of their entire communities, including low and
moderate income areas, to assess their CRA records during exami
nations, and to take these records into account when evaluating
proposals for expansion.

1

1

4

I am well aware of the concern about the high incidence of satis
factory CRA ratings, yet I would be surprised if this were not so ,

given that banks have always had an obligation to serve their com
munities for reasons of both law and goodbusiness.

PARTNERSHIPS

To help banks leverage their community investments and make

possible even the most complex deals, we have facilitated the for
mation of partnerships among banks, Government, and private
sector organizations. We have also witnessed a heightened interest
on the part of the banking community in such initiatives as com
munity development corporations and mortgage loan pools.

AGENCY TOUGHNESS

Critics often point to the fact that few cases have been denied on
CRA grounds, but this alone is quite misleading as an indication of
agency toughness. The Board's longstanding posture has been to
take the opportunity afforded by the applications process to encour
age banks to do a better job under the CRA.

.

5

cific guidance to banks on the types of activities that seem to
produce the best results. It makes clear that we expect to see those

results. Banking organizations should have their CRA programs in
place and working well before filing an application.

For
on
release
delivery

Iwunity
op
this
for
Subcommittee
the
thank
to
ant

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p.m.
, .D.T.
1
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31
July

Reinvestment
Community
the
regarding
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nd
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erve

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responsibilities

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financial
in
rights
consumer
safeguarding
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federal
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Garwood
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Griffith

services
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CRA
to
addition
enspecially
services
credit
We
compliance
consumer
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provide
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and
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knowledge
share
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arise
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m
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mandate
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ousing
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nd

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31
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records
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service
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expansion
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but
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been
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av
poses
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RA
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challenge

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2-

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on
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ery
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and

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learn
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e

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growth
economic

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between
interests
responsi

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banks
community
and
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revitalization
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community
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etter
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business
do
to
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live
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have

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course

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of

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ur

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forces
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charged
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with
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bias

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them
within
work

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toward
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banks
applicant

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framed
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practical
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of
measures
appropriate
to
as

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settlements
with
filing
groups
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protests
CRA

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requiring
and
credit
CRA
extend
to
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encouraging

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tions
on
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delaying
unfairly
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examina
pass
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it
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giving
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RA

fine
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between
line

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types
or
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so
do
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tions
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hand
other
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have
organizations
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they
what
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be
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believes
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Board
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to
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ps
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anker
pproach
ro

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research
time
more
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grant
to
applications
of
context
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in
banks
against
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and
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in
for
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not
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the
in

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that
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often
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overlooked
attract
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seems
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.
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simultaneously
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financial
consider
to
law
by
obliged
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it
that

our
hopefully
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convey

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nd
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itself
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other
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of
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proved

financial
other
and
bankers
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central

specially
send
we
basis
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on
day
every
which
in
effort
their
call
to
examiners
trained
of
members
and
banks
on
assessment
.
advice
and
CRA
render
to
communities

is
effort
This

5

case
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in
often
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program
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ubstantial
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compliance
of
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elated
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by
commitments
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participants
of
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solely
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from
other
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mance

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m
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of
ultitude
applications
the
in
organizations
banking

undertaken
.
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has
initiatives

their
aExaminers
jobs
to
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matters
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instances
,
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ccounting
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reached
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private

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at
trained
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evel
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presented
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posed
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t
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nd
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e
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of

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CRA
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into
take
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scope
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s
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well
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market
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each
account
vehicle
encourage
to
best
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CRA

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locale

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be
increasingly
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and
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enforcement

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onstitutes
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example
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tprograms
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special
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moderate
and
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realtors
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relationships
working
counseling
mortgage
e
providing
in
fforts
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extent
t
,businesses
minority
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small
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assistance
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small
and
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out
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personnel
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to

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jointly
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by
issued

,18
months
every
about
examined
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state
member
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nd
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(if
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provided
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elated
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as
lending
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oo

each
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bank
review
and
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-7

6

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moderate
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convenient
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ment
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ssigning

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into
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%in
93
date
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and
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1989

banks
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banks
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banks
put
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ac
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iven

insight
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benefit
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performance
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banking
b
a
is
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principle
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fact
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t

activities
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close
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gained
bank
at
look
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and

U.s.
in
roots
historical
deep
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,formally
law
banking
at

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contacts
community
from
of
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the
communicate

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1935
of
Act
Banking
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back
far
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least
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declared

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end
the
at
orally
management
bank
to
review
their
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tion
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office
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to
return
they
once
form
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in
hey

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the
serve
should
banks
"o
needs
and
their
onvenience

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Bank
the
in
reinforced
was
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of
Act
Company

community
.

,
improvement
for
measures
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and
weakness
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areas
stress

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1956
listed
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of
needs
and
community
S

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respond
must
management
bank
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to
supervisory

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in
consider
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one

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ollow
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9

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Numerous

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-9

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Federal
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by
supervised
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hen
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/ounder
and
million
r
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ut
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force
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traditionally
have
banks
town
Small
safety
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meet
such
loans
make
to
expertise

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local
to
sensitive
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must
and
communities
their

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business
out
soon
be
would
they

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acknowledges
law
the
criteria
soundness

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field
this
information
with We
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provide
to
lending

cperformance
;-bon
basis
ase
agauges
y
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system
ratings

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Reserve
twelve
the
of
each
to
program
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statistical
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edian
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a
low
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to
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1980
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with
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dealing
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50
conducted
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ommunity
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year

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programs
throughout
the
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e
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valuation
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elf
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the
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we
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CRA

to
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Iwould
more
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ratings
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indication
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resource
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and
tools
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on
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community
by
prepared
publications

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rigorous
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lending
community
development
techniques
of

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Affairs
Community
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are
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the
at
offices
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The

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we
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ody
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as
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share
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-10

-11

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ased

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banks
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11

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National

banks
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benefit
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communities
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1988
In
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umber
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abanks
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Boston
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RA

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13

12 -

been
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few

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banks
encourage
process
applications
the
by

cases
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4,000
than
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for
time
processing
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39
was
1988
and
1987
in
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by
handled

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denials
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CRA

t
, he
However

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1988
days
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nts
to
commitme
made
have
institutions
many

CRA
a
protest

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is
completed
processing
them
address

to
pertinent
information
other
all
nd
a,the
public
from
comments

the
than
less
s
(in
1987
days
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was
time
processi

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of
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ain
to
coming
record
institution's
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more
omewhat
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1988
days
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aaverage
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area
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oughly
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Thus
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12

banks
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y Average
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% f
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,-p
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For

Board's
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-14

15

cide
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CRA
for
policy
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parent
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orporate
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for
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eriously

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of
performance
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special
in
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neighborhoods

for
commitments
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organizations
made
have
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prominent
performance
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improved

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many
list
A

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presented
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part
as
years
over
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Yet

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imited

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its
of
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record
past
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of
financial
articularly

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plan
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failed
resources
basic
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show
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implementation
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ould
early
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was
which

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approval
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commitments
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evaluated

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---

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13

is
their
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iven
credit
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services
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reports
Federal
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monitored
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ifferent
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commitments
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satisfactory
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problems
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establish
should
before
record
performance
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expansion
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assertive
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elements
key

into
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of
means
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products
of
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development

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loan
of
analysis
periodic
active
nd
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manner
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quitable
air
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e
f
in
are
borrowers

-17

-16

limited
sometimes
is
as
timid
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portrayed
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e
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encouragement
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their
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development
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apation
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######

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to
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members
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applications
on
comments
analyzed
be
will
protest
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.
thoroughly
and
carefully

well
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serve
as
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s
communities
the
of
representatives
and
we
P
by
us
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mandate
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to
faithful
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Congress
effort
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has
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ut
perfectly
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always
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done
not
have

14

expanded
those
react
to
organizations
,making
Statements
CRA
dealt
be
can
they
when
stage
early
an
at
concerns
their
known

ATTACH
MENT
A

SEMINARS
AND
CONFERENCES

Testimony
CRA
to
Supplements

Established
lenders
Wilmington
in
Dcouncils
ayton
Ehio
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NAarrisburg
Camden
ew
Hto
Jersey
Philadelphia
nd
,Pa
address
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needs
credit
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Cosponsored
over
meetings
25
promotion
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for
Neighborhood
of
Seminars
and
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1988

cities
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in
programs
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ichmond
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A
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Publications
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.on
development
economic
seminar

16

.New
department
housing
City's
York
the
of
program

ATTACHME
NT
B

-2

FEDERAL
OE
EXAMPLES
COMMUNITY
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Sfor
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pportunities
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rkansas
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ank
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his
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credit
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the
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community
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erious
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atalog
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ummary
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rogram
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how
of
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17

Opportunities
in
Poor
the
for
Bankers
"A
Housing
to
Guide
causes
of
D
the
Neighborhoods
" iscusses
Gentrifying
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steps
what
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gentrification
,how
it
effects
alessen
on
gentrification
of
remedy
and
impact
the

ATTACH
MENT
C

2OE
EXAPLES

1989
December
.
SYSTE
RESERVE
FEDERAL
THE
TO
ITMENTS
PERFORMANCE
CRA
IMPROVING
FOR

C
Corporation
City
,O
National
leveland
hio
inform
-Implement
to
designed
campaign
advertising
an

1979
June

MCity
nc.
ansas
,Iissouri
Bancshares
Commerce
,K
media
neighborhood
local
in
loans
residential
Advertise
credit
needs
assess
to
efforts
Increase

protestant
with
meet
Periodically
1979
May

oledo
hio
Ohio
T
Company
Trust
,O
Citizens
low
of
communicate
members
with
to
efforts
Increase

,1982
16
June

i
-areas
moderate
and
ncome

Chio
Corporation
City
,O
leveland
National

1979
November

to
Reinvestment
Community
for
Coalition
Akron
with
Meet
work
low
reach
to
designed
program
advertising
an
out

M
ichigan
Corporation
,B
Hills
loomfield
Michigan
National
-income
moderate
and
neighborhoods
bank
personnel
of
training
CRA
Improve
programs
lending
special
in
Participate

community
counsel
to
available
personnel
bank
Make
-

matters
financial
on
residents
meetings
community
at
attendance
Increase

corporation
development
for
tomprove
personnel
lending
its
-I
programs
training

group
community
with
concert
in
efforts
CRA
Review
1984
April

MBNew
assachusetts
,of
oston
Corporation
England
Bank

1980
January

assachusetts
M,Corporation
oston
BFirst
Boston
National

1985
October

Carolina
,NCFirst
orth
harlotte
Corporation
Union
1980
June
York
N
, ew
Company
Trust
Hanover
Manufacturers
3
with
properties
on
lending
not
of
Eliminate
policy
4-family
and
units

mortgages
d
ownpayment
tutilizing
-,lOffer
erm
ow
long
insurance
mortgage
private

18

how
serve
to
on
groups
input
community
from
Encourage
,and
community
its
of
needs
financial
the
the
consider
community
alocal
establishing
of
feasibility

-3

1985
November

counseling
credit
Offer
services

Virginia
Bankshares
nc.
,I
RUnited
irginia
Vichmond

partnership
venture
joint
Enter
community
with
-b
ased
organizations
1986
December

1986
July

O,Bancone
Chio
olombus
Corporation

,Nouisiana
Corporation
Hibernia
ew
,LOrleans

1986
August
isconsin
ilwaukee
&Ilsley
Marshall
M
Corporation
,W
,M
protestant
with
discussions
on
Based
to
& ommitted
Ic

1986
November

Keystone
,Itate
Financial
S
,P
College
nc.
ennsylvania

19

undertake
several
response
in
measures
community
:to
concerns

1987
April
llinois
,I
aperville
nc.
N
Midwest
Bancorp
First

-5

Dexas
Corporation
RepublicBank
,T
allas

1987
October

Portland
Bancorp
U.S.
,O
regon
Board
neighborhood
with
agreements
applicant's
noted
efforts
its
enhance
to
order
Antonio
San
and
Dallas
in
groups
:
for
calling
areas
those
in
-

1987
June

1987
November

Carolina
orth
harlotte
,NCNB
CN
Corporation

Corporation
Prizona
,A
hoenix
National
Valley
and
lowcertain
in
performance
CRA
its
strengthen
To
census
-i
,moderate
Tuscon
and
Phoenix
within
tracts
ncome
agreed
:
to
Applicant

20

1987
September
alifornia
CAngeles
os
,L
Bancorp
Interstate
First

1

1987
October

rkansas
A
,N
Rock
Little
orth
nc.
I
Bancshares
One
National
-Cervice
-s
full
lending
mortgage
residential
reate

-7

8

more
instituting
by
compliance
consumer
Strengthen

,VA
FHA
Fund
loans
estate
real
conventional
and
-income
moderate
lowin
loans
business
small
and

procedures
review
and
training
extensive
ascertainment
needs
credit
and
marketing
Enhance

areas

lowin
efforts
moderate
and
minority
-income

outreach
community
comprehensive
Establish
to
program
Service
aC
by
coordinated
be
with
Officer
ommunity
compliance
with
bank's
the
monitoring
responsibility
contact
maintaining
and
CRA
community
with

neighborhoods

community
representatives
with
meetings
Through
and
aggressively
,more
officials
city
out
seek
community
opportunities
financing
development

Federal
progress
with
reports
the
quarterly
File
Atlanta
of
Bank
Reserve

1988
May

York
New
in
delineations
community
its
reassess
will
Bank
aso
,tCity
acquired
being
bank
the
of
those
as
well
they
ensure
arbitrarily
-and
low
exclude
territory
not
do
lending
reflect
iareas
-committed
moderate
and
.I
,Bncome
addition
to
ONY
n
Directors
calling
aCRA
undertake
of
Board
its
by
adopted
plan

epublic
anama
Sof.A.
,R,PSaban
City
Panama

:
for

21

1988
June

M
inneapolis
,, innesota
Corporation
Norwest

1988
April

tlanta
eorgia
Inc.
Banks
SunTrust
A
,G
Savannah
its
of
performance
the
to
respect
With
:will
S
, unTrust
subsidiary

-10
9
-

ncluding
i-Make
, nsured
available
loans
governmentally

1988
October

onnecticut
C,M
eriden
Inc.
Cenvest

loans
VBA
FHA
,S
A

banking
lifeline
Offer
accounts
pattern
ar
establish
to
efforts
Continue
of
egular
contact
government
and
organizations
community
with

of
Board
its
committee
apublic
Establish
policy
entities

to
contacts
community
regular
and
advertising
Continue
credit
services
awareness
of
greater
foster
with
collaborate
opportunities
to
seek
Continue
cother
,agovernment
/ogroups
nd
rommunity
entities

and
oversee
activities
CRA
president
to
-Assign
vice

development
community
on
institutions
financial
projects

Detroit
,M
ichigan
Incorporated
Comerica

22

1988
August

innesota is
inneapol
nc.
,I
M
System
Bank
First
the
regarding
findings
examination
CRA
to
In
response
:bank
to
committed
BS
,Fof
subsidiary
M
a ontana
performance

innesota
,I
inneapolis
M
nc.
Bank
Systen
First

1988
November

I
reland
Ireland
,D
ublin
of
Bank

1988
September

t.
,MIntegra
Financial
Corporation

,Pennsylvania
Lebanon

extend
pplicant
will
a
,being
acquired
bank
to
respect
With
government
lending
various
participation
in
Extend
geared
to
product
mortgage
anew
develop
and
programs
neighborhoods
moderate
-ilowncome
and
with
officer
affairs
development
community
Appoint
CRA
on
Directors
of
Board
the
report
to
duties

activities

Federal
the
reports
with
progress
a
-File
nnual
semi
Cleveland
Bank
and
Reserve

:its
endeavors
current

-1
1

1989
January

N,O
maha
nc.
Iebraska
Financial
FirsTier
enhance
provision
to
plan
CRA
of
implementation
Complete
neighborhoods
-i
moderate
and
lowOmaha's
in
services
,of
ncome
:
including

23

1989
July

I
,Wayne
ndiana
F
ort
Corporation
National
Fort

CRA
TRAINING
HOURS
FOR
FEDERAL
RESERVE
SYSTEM
EXAMINERS
1984

Schools

1985

1986

1987

1988

1989

Total

OTHER
:

I
Compliance
2
40

2

24
40.5

Hours
Total

2
37
40.5

-

No.
Sessions
Students
No.

Seniorer
Examin

40.5

1
12
20

1
19
20

10
189
223.5

2
57
42

students
18
hours
19
Advanced
CRA

II
Compliance

Sessions
No.
No.
Students
Hours
Total

2
26
11.5

1
13

1

12
7.5

7.5

2
25
16

1
19

*
1

7

6.5

8.5

8
102
66.5

s
2essions
students
45
hours
80

Banking
I

24

No.
Sessions
Students
No.

3

111

3
100

Hours
Total

3

3
99
9

130
12

*
2
50
6

19
656
57

4

II
Banking
Sessions
No.
No.
Students
Hours
Total

3

84
9

3
101

3
102

4
141
12

4
142
15

*
1
34
3

18
604
57

2
41
2

2
38
2

2
36
2

2
39
2

*
1
29
2

226
12

Applications
BHC
Sessions
No.
Students
No.
Hours
Total

2
43
2

୯
.in
year
the
later
for
scheduled
are
sessions
*Additional

11

ATTACHMENT D

i

4

166
12

1984

6

7
17
44

ATTACHMENT E

5648
5

1987

5

1986

6

7
15
72

1985

14
42
14
49

Federal Reserve System
Average Number of Hours Spent on CRA Examinations

25

500

100 - 500

25 - 100

25

( in Millions )

Bank Asset Size

>

1988

13

‫ابی‬
‫ده‬

N

Federal
Reserve
Systen
Examination
CRA
History
1981

1982

1983

1984

1985

1986

1987

1046

1060

1075

1075

1096

1108

1092

1081

1073

894

770

Number
CRA
of
Reviews

1980
1011

894

State
of
Number
Member
Banks

764

709

765

637

598

626

229

6-30-89
1988

Examined
Percent
%
88

CRA
For

%
71

1.92

%
57

%
70

%
55
1.93

1.90

1.90

%
21

%
58
1.99

2.00

26

1.96

1.97

1.90

%
66

72

2.00

%
73

%
7

Rating
Average

%
85

Less
Rated
Percent

Than
Satisfactory
3%

5%

3%

2%

1%

3%

ATTACHMENT F

FEDERAL
RESERVE
SYSTEM

Examination
Statistics
:CRA
1984

1984

2

1

3

4

6

86

0

O

10

33

20

67

0

o

11

7

78

1

11

13

43

81

3

10

13

70

88

0

7

11

55

89

0

o

%

0
O

14

#

1

5

#

%

%

%

#

#

Boston

%

1988

York
New

0

o
0

Philadelphia
1

0

6

O

O

o

o

O

O

0

O

0

0

o

o

O

0

5

4

1

1

o

0

0

0

0

0

Cleveland 7
Richmond

2

116

Louis
St.

1

2

44

96

1

2

14

75

83

2

3

5

102

95

0

0

21

34

79

Dallas

9

0

0

0

O

0

0

0

88

0

0
O

12

50

7
Francisco
San

o

0

Kansas 5
City

0
0

ATTACHMENT G

13
Minneapolis

0

3

93

27

Atlanta

Chicago

FEDERAL
RESERVE
SYSTEM

CRA
Examination
Statistics
:1984
1985

2

1

3

O

21

60

1

43

8

57

0

O

1

3

O

o

0

o

o

3

O

34

O

York
New

%

O

12

60

5

%
%

o

2

40

4

3

%

#

#

#

Boston

%

1988

Philadelphia
6

o

O

Cleveland 9

44

81

1

2

o

O

o

20

65

78

1

1

o

o

0

Atlanta

12

15

66

81

2

2

1

1

0

Chicago

4

3

142

96

2

1

0

Louis
St.

2

4

47

96

o

14

58

84

o

1

0

o

o

17

17

o

28

o

Richmond

o
o

o
1
a

o

o

86

1

2

O

54

o

13

0

o

o

o

81

o

42

o

111

19

o

1

10

0

O

1

99

Francisco
San
8

o

Kansas
City
Dallas

0
O

Minneapolis
10

o

1986

3

2

1
#

#

%

9

27

67
70

1

6

60

0

0

13

38

84

1

2

3

o

0

o

0
O

23

40

o
O

Cleveland 6

O

Philadelphia
4

0

0

O

3

3

Chicago

2

2

114

97

0

O

Louis
St.

1

O

1

0

O

0

0

o

Kansas
2
City

3

69

97

0

0

o

0
o

o
O

2

O

o

1

o
O

86

o

O

81

55

o

O

43

13

2

o
O

19

0
1

O

0

86

1

O

98

43

10

O

O

42

12

Francisco
San
8

0

O

2

Minneapolis
6

Dallas

0
O

29

80

O

88

70

O

51

16

O

12

14

Richmond

O

7

Atlanta

%

O

York
New

#

4

%

#

O

33

5

4

%

o o

2

#

1988

O

Boston

%

O

22-155 O - 90 - 2

FEDERAL
RESERVE
SYSTEM

Examination
Statistics
:CRA
1984

SYSTEM
RESERVE
FEDERAL
Statistics
Examination
:CRA
1984

1

3
N

1987

#

19

68
64

0

0

o

O

o

0

o

0

2

0

O

0

O

O

1

4

O

29

%

0

O
O

8

o
O

Philadelphia
4

5

%

#

#

#

33

8

York
New

67

1

2

4

%

%

%

#

Boston

1988

11

46

87

1

9

12

68

87

1

1

O

O

0

o

O

o

O

o

0

85

8

4

3

134

94

5

3

O

2

5

41

95

o

o

0

o

0

1

3

0

2

0

o

O

0

o

0

0

0

0

16

31

Kansas 2
City

5

40

93

O

un

1

29

71

56

93

0

0

o

7

22

O

4
Francisco
San

o

o

9

0

O

6
Minneapolis

82

Dallas

†

57

O

Louis
St.

3

O

Chicago

2

30

Atlanta

12

O

Richmond

o

Cleveland 6

O

36

7

FEDERAL
RESERVE
SYSTEM
Examination
Statistics
:CRA
1984
1988

3

4

%

5

50

3

50

0

0

O

5

17

20

69

4

14

0

35

10

59

1

6
9

O

%

0
O

3

%

#

#

%

%

%
#

#

Boston

N

1

1988

York
New

Philadelphia
6

0

O

o

0

O

0
O

3

29

85

3

12

16

65

84

o

Atlanta

3

3

70

75

19

20

1

Chicago

3

2

118

94

3

2

1

Louis
St.

2

5

38

95

0

12

34

83

1

O

88

10

7

1

0
O

51

0

1

0

1

1

O

1

2

31

10

O

Francisco
San
6

2

o

83

o

o

30

o

17

o

o

O

6

0

o

O

84

1

o

o

59

O

O

4

1

O

3

0

O

Dallas

o
o

O

Kansas
City

O

5
Minneapolis

3

1

o

Cleveland 1
Richmond

Applications
of
Disposition

Federal
by
Handled
System
Reserve
-July
1984
1989
Applications
Domestic
All

No.
Total

Approved

Applications
Protested
CRA

00
6
,13

*
112

12,777

108

Denied
**
Withdrawn

ed
Return
or

32

CRA
enhanced
for
commitments
involved
t
,* nhe
cases
these
of
32
Iapproval
ATTACHMENT H

terminates
w
,the
applicant
by
withdrawn
applications
to
refers
This
**hich

33

Senator Dixon . Thank you , Mr. Garwood .
Mr. Kluckman .
STATEMENT OF JERAULD C. KLUCKMAN, DIRECTOR OF COMPLI.

34

Over the past 18 months we have taken five important steps to
further our industry education and examination objectives. I would
like to highlight these five areas for the subcommittee.

35

In March 1988, the Board reaffirmed its commitment to commu
nity investment by the adoption of a housing statement that
strongly encouraged the Federal Home Loan Banks to develop pro
grams and support credit policies to assist the community invest
ment efforts of thrift institutions.
APPLICATIONS

I would like to talk about applications for a moment. Applica
tions filed by thrift institutions or their holding companies have
historically been infrequent targets of CRA protests by community
groups.

a

36

tion specialists we are well on our way to building a sound pro
gram .

like
,Iw
Chairman
Mr.
for
Subcommittee
the
thank
to
ould
System's
Bank
Loan
Home
Federal
the
on
testify
to
opportunity
n
(CIRA
Act
Reinvestment
Community
the
of
).enforcement
response
on
,my
letter
invitation
your
to
focus
will
testimony
our

compliance
examination
enforcement
and
particular
with
program
,the
aspects
its
on
emphasis
the
in
matters
CRA
of
treatment

experiences
applications
with
,and
process
our
CRA
.
grounds
protested
on
Examination
Systen
FHLB
Program

OF
STATEMENT

,DIRECTOR
KLUCKMAN
C.
JERAULD
Brief
History
REGULATORY
ACTIVITIES
OF
,O
PROGRAMS
COMPLIANCE
DIVISION
FFICE
,the
1989
early
to
Prior
examination
compliance
and
CRA
System's
responsibilities
safety
routine
the
of
part
as
out
carried
were

LOAN
HOME
FEDERAL
THE
OF
SYSTEM
BANK

AND
AFFAIRS
REGULATORY
CONSUMER
ON
SUBCOMMITTEE
THE
BEFORE

.These
institutions
thrift
of
examinations
soundness
and

COMMITTEE
BANKING
SENATE
THE
OF

37

a6texaminations
on
examiners
generalist
by
performed
were
18o
the
upon
depending
frame
time
month
an
of
condition
financial
safety
overall
the
to
addition
.In
institution
soundness
and
(cating
rating
M
the
as
known
"r
),i
were
nstitutions
ommonly
ACRO
system
Che
.Tassigned
rating
CRA
RA
a5-p
used
oint
,with
scale
grading
"1r
and
performance
outstanding
epresenting
unsatisfactory
."5relaborate
performance
Iwepresenting
ill
over
ratings
of
distribution
and
system
rating
the
upon

1JULY
, 989
31

.
testimony
this
in
later
years
several
past
consumer
,CRA
Frankly
other
and
responsibilities
examination
abackseat
took
typically
crisis
thrift
the
as
concerns
other
to
substantial
-1
mid
the
during
heightened
,a
examination
980's
nd
.was
matters
financial
devoted
be
to
needed
resources
It
not
removed
was
staff
examination
the
when
1985
after
until
Civil
from
Home
Federal
the
from
transferred
and
Service
Board
Bank
Loan
to
Loan
Home
Federal
the
able
were
we
that
Banks
plans
make
to
enhance
compliance
our
We
testified
examination
CRA
program
.and
1

problem
addressing
regulatory
brochures
of
aseries
developed
Bank
devoted
the
to
was
series
brochure
in
first
The
.
areas

.this
1988
during
twice
point
on
Committee
Banking
Senate
the
to
year
last
testified
also
We
process
the
in
were
we
that
of
.in
area
important
this
performance
Iam
to
pleased
improving
our
anew
adopted
has
System
the
that
you
tell
to
able
be
compliance
key
the
you
for
describe
and
program
examination
to
able
be

.Secrecy
year
this
of
was
May
in
released
and
Act
enforcement
which
program
an
administers
,the
Second
division
responsibilities
.and
examination
supervision
System's
the
directs
was
compliance
area
program
the
for
examination
separate
A
.Bank
1989
January
in
Board
Loan
Home
Federal
the
approved
by
compliance
new
the
of
significant
element
most
Probably
that
examiners
utilize
to
Board's
decision
the
involves
program
These
.laws
CRA
regulations
and
compliance
specialize
the
in
and
training
laws
the
in
specialized
receive
will
examiners
compliance
within
of
scope
the
covered
regulations

elements
of
new
program
.the

System's
FHLB
the
of
Elements
Key
Program
Compliance
New
compliance
focus
provide
To
an
of
development
the
for
ational
Regulatory
Activities
of
office
system's
,the
program
examination
(formerly
)e
ORPOS
Programs
Compliance
of
Division
the
stablished
division
to
is
this
mission
of
primary
The
.
1987
October
in
supervisory
address
to
program
anational
develop
and
examination

.
examination

division's
,iThe
matters
.compliance
CRA
ncluding

being
Compliance
is
School
fact
,tof
first
amhe
As
atter
week
two
this
at
students
30
The
basic
conducted
speak
we
.as
over
of
hours
20
receive
July
,w
24th
ill
on
began
school
hich
n
ondiscrimination
investment
,on
c
ommunity
the
CRA
instruction
procedures
.,alaws
examination
applicable
regulations
nd
and
laws
nondiscrimination
the
and
CRA
the
instruction
on
classroom
s
easoned
trained
,by
provided
being
is
regulations
and
the
from
s
member
taff
,awith
experience
field
professionals
Investment
C
a,Board's
nd
Community
ofommunity
office
Francisco
.of
San
Home
Bank
Loan
Federal
the
from
officer
In
presented
a1from
ACORN
r
,onepresentative
26th
July
addition
a
organizations
play
community
that
role
the
on
session
hour
1/2
and
for
slated
is
school
compliance
basic
Another
the
in
CRA
process
.
an
with
,and
1989
December
along
1990
for
planned
are
more
two

.First
goals
broad
two
has
Programs
Compliance
of
Division
The
,
the
member
assisting
by
role
educational
an
performs
division
laws
with
complying
and
understanding
in
institutions
.published
division
am
anual
regulations
,tInhe
regard
this
,CJuly
:"entitled
Snompliance
i-A
.Guide
1988
elf
ssessment
an
provide
to
information
helpful
designed
is
guide
This
aviable
developing
institution
in
and
program
compliance
compliance
.The
reviews
also
reporting
and
conducting
guide
Home
Board
Bank
Loan
statement
Federal
the
from
apolicy
includes
establish
athat
institution
thrift
suggests
every
strongly
.compliance
complexity
and
size
commensurate
its
with
program
It
institution's
an
in
only
not
it
that
belief
firm
Board's
the
is
vut
have
to
interests
,best
program
compliance
ab
iable
usiness
to
.cost
responsibility
provided
no
at
was
guide
copy
A
the
of
have
publication
the
of
copies
900
About
.
institutions
member

38

consumer
the
overseeing
compliance
with
responsibilities
include
nRA
regulations
and
Claws
a,requirements
nd
ondiscrimination
-interest
public
other
of
.number
Act
Secrecy
Bank
the
as
such
laws
A.
Exhibit
in
found
be
description
can
program
the
of
complete
A

school
.
advanced

includes
our
regimen
training
examiner
part
significant
Another
of
Under
this
program
,the
.
Program
Intern
Resident
new
division's

from
the
other
personnel
supervisory
and
examiners
compliance
Washington
a3-w
for
ineek
offices
our
to
come
Banks
District
in
,tDassignment
time
this
an
gains
participant
-d
uring
epth
. he

.

been
sold
in
l
ittle
Tear
also
has
he
over
y
.adivision
2

3

District
Bank
ache
of
conclusion
the
,tAt
examination
ompliance
written
report
csexamination
omprehensive
,a eparate
prepares
institution's
directors
of
board
an
benefit
the
for
primarily

involved
becoming
by
functions
our
about
education
special
with

ind
,aprojects
members
staff
interagency
attending
nterviewing
.and
like
the
Tprogram
year
this
of
April
in
began
he
meetings

narrative
is
and
.The
management
senior
all
report
be
toeport
designed
.R
educational
and
consultative
is
content
each
to
tailored
is
and
improvement
of
need
in
areas
toward
geared
Assessment
Tindividual
CRA
the
of
portion
. he
institution
an
of
evaluation
examiner's
the
presents
report
examination
with
compliance
institution's
requirements
regulatory
,aCRA
its
nd

participants
the
of
all
by
received
well
very
been
has
.and
far
so
Federal
the
at
staff
to
distributed
and
completed
also
have
We
Home
our
of
copies
institution
thrift
each
to
and
Banks
Loan
effort
TActivities
represents
Handbook
the
C." his
ompliance
examination
its
of
all
had
has
System
the
that
time
first
nondiscrimination
,ac
nd
onsumer
the
to
pertaining
procedures
devoted
andbook
and
ah
in
regulations
laws
interest
public
provides
Texclusively
handbook
new
with
examiners
he
.to
them
compliance
,the
examinations
of
conduct
as
guidance
specific
to
the
law
and
in
contained
regulation
each
on
information
textual
,compliance
and
objectives
examination
program
examination
addition
Ichecklists
serving
p
ato
as
., nrimary
aprocedures
nd
,the
tool
examination
centerpiece
educational
an
also
is
handbook

needs
community
its
of
credit
the
meet
to
helping
in
performance
criteria
.are
examination
remarks
CRA
The
to
CRA
the
pursuant
;D
Delineation
Community
of
: escription
subparts
four
in
presented
aV
,C
nd
RA
iolations
Assessment
CRA
twelve
the
;Factors
.
Conclusions

and
staffed
fully
be
should
program
examination
compliance
new
The
January
.1,1
C991
e
being
are
xaminers
urrently
implemented
by
each
at
area
compliance
the
to
assigned
and
selected
District

.
institutions
for

full
Tare
specialized
compliance
. he
prepared
being
program
may
effective
1991
the
before
sometime
operational
completely
be
well

39

tnd
,aBank
provided
being
is
reports
examination
separate
raining
Examinations
specialized
the
under
a
on
conducted
are
program
or
CRA
either
of
lower
the
by
driven
schedule
frequency
.The
examination
previous
the
at
assigned
rating
Compliance
6and
between
range
can
examinations
between
interval
months
24
institution
be
would
,the
rating
lower
the
an
frequently
more
CRA
both
for
assigned
during
examination
the
.Ratings
examined
a5-point
on
based
are
compliance
and
"1r
with
scale
epresenting
"5the
and
performance
favorable
most
the
.R
poorest
of
atings
while
performance
satisfactory
"3,4a2r1 eflect
nd
"5signify
unsatisfactory
of
degrees
deepening
progressively

date
.

Ratings
CRA

individual
rating
CRA
The
make
to
examiner
the
requires
system
performance
CRA
six
of
performance
.Tassessments
categories
he
factors
assessment
twelve
the
of
groupings
represent
categories
E
563e
performance
(12ach
regulations
CRA
the
in
contained
).CFR
assigning
Iscale
norading
1ton
5.of
evaluated
ag
is
category
,the
rating
CRA
composite
overall
the
performance
individual
evaluated
how
to
according
and
weighed
are
assessments
category
characteristics
descriptive
overall
meets
institution
the
well
Csix
.Tommunity
category
that
:for
are
categories
performance
he
Types
Marketing
;Needs
Extended
and
offered
Credit
of

.Effective
performance
after
or
on
commencing
examinations
with
11oth
,bJuly
being
are
ratings
CRA
and
Compliance
the
989
institution's
an
to
disclosed
directors
of
board
management
and
in
examination
report
.the

5

Nondiscriminatio
Compliance
n
; Other
Development
,C
Other
and
ommunity

;
Distribution
Geographic
Practices
;illegal
Credit

Procedures
Examination
CRA

procedures
examination
CRA
use
to
directed
are
examiners
System
CRA
institution's
assessment
an
of
that
recognize
lneeds
ato
of
credit
the
helping
meet
inocal
record
performance
requiring
.ab
viewpoint
alanced
pThe
is
community
rocess
from
the
both
information
ensure
that
to
designed
are
procedures
reviewed
objectively
are
community
the
and
institution

.
Factors

employed
system
rating
CRA
The
similar
substantially
is
now
to
used
that
by
banking
the
agencies
The
Federal
Bank
Loan
.Home

Board's
old
rating
CRA
had
pbasically
"i3system
grades
nassing
rperformance
a3. Use
ating
represented
"that
satisfactory
of
examinations
compliance
with
began
system
rating
new
the
1,1of
July
after
or
on
.commencing
c989
A
rating
the
opy
descriptions
for
rating
CRA
old
the
are
system
B.
Exhibit
in
new
the
of
copies
examiners
by
used
systems
assigning
for
both

its
E
of
basis
the
on
evaluated
is
institution
. ach

meet
and
ascertain
efforts
help
to
actions
its
,c
ommunity
local
and
resources
its
of
context
the
in
needs
credit

procedures
system's
examination
CRA
ccircumstances
A
the
of
. opy
E.
Exhibit
in
found
is

c.
Exhibit
in
are
ratings
CRA
and
compliance

.
straightforward
are
process
examination
CRA
the
of
objectives
The

tdistribution
,by
request
your
Per
he
of
ratings
CRA
assigned
Home
Federal
District
Bank
Loan
1983
from
can
1988
to
in
found
be
distribution
This
Exhibit
based
is
D.
the
on
rating
CRA
old
.aggregate
system
An
that
indicates
1988
and
1983
between
slightly
less
p
2 ercent
than
institutions
the
of
examined
during
received
period
that
either
of
"5,a4oratings
rnd
percent
5.4
overwhelming
Tratings
1oreceived
either
he
"2.of
r
majority
institutions
arating
received
"3,w
of
under
hich
old
the

has
institution
whether
the
determine
must
,the
examiner
First

40

established
that
procedures
policies
implemented
and
affirmative
recognized
and
continuing
its
has
it
that
demonstrate
entire
community
its
of
needs
help
credit
the
meet
obligation
to

of
needs
conveniences
credit
facilities
the
serve
its
that
and

whether
determine
must
,tSits
examiner
econd
entire
community
. he
is
in
delineation
community
local
its
of
institution's
the
that
requirements
and
regulatory
the
accordance
with

to
equated
rating
.system
performance
average

.is
regulation
CRA
the
with
compliance
technical
in
institution
nexplain
a umber
are
There
reasons
of
may
that
high
the
evaluating
is
with
charged
examiner
he
Specifically
,tthe
credit
community
meeting
and
ascertaining
at
efforts
institution's
,tneeds
Furthermore
require
now
procedures
examination
CRA
.he
estate
interview
real
as
such
parties
routinely
examiners
that
or
,action
leaders
political
celigious
brokers
r
groups
ommunity
ngroups
beighborhood
organizations
,merchant's
clubs
lock
and
c,am
lonsumer
coalitions
rights
civil
ocal
nd
inority
centers
,service
counseling
h
groups
-Eousing
non
speaking
nglish
,nonprofit
corporations
community
development
housing
.P
the
to
corporations
development
,arior
local
nd

ratings
satisfactory
of
.percentages
institutions
First
,t
hrift
providers
leading
been
finance
housing
of
amhave
is
which
ajor
-rrimary
CRA
elated
certainly
and
p
aactivity
concern
of
many
community
groups
.

.

7
6

contacts
,twere
"o
hese
utside
program
examination
new
made
were
circumstances
special
when
only
usually
and
infrequently
enable
Tetter
interviews
hese
.the
examiner
apparent
ab
gain
to
well
as
community
local
the
needs
credit
the
of
perspective
institution
has
extent
the
which
to
of
understanding
an

institution
smallest
the
in
hours
16.83
to
compared
shops
on
Tlargest
asset
all
for
average
national
.in
ones
he
the
.
hours
7.19
was
ranges

It
have
hours
examination
CRA
average
that
note
to
interesting
is
significantly
increased
groups
asset
all
nearly
in
1986
,tsince
he
year
of
employ
to
examiners
the
transferred
Board
examination
compliance
new
our
As
becomes
program
.
Banks
District
hours
,we
operational
fully
more
that
anticipate
devoted
be
will

credit
.
needs
those
meet
and
ascertain
to
endeavored

,
interviews
conducting
and
procedures
reviewing
to
addition
In
examiners
an
using
by
examination
CRA
the
approach
also
of
umber
make
,e
examination
CRA
any
of
part
As
use
xaminers
tools
.other

matters
CRA
the
.to

information
HMDA
available
of
determine
to
geographic
the
institution's
an
of
distribution
loan
.mortgage
portfolio
collected
information
disposal
their
at
,they
Moreover
have
Home
Federal
the
through
Board's
Bank
Application
Loan
Register
(L
System
Report
)./DSubmission
SR
ata
ARS
This
disparities
lending
mortgage
identifies
information
prohibited
on
loan
from
bases
that
data
application
of
part
as
explored
then
are
examination
information
collected
he
process
system
this
by
.Tthe
the
help
to
used
is
evaluate
examiner
things
,aother
nmong
assessment
CRA
different
several
under
performance
institution's
factors
applications
discourage
to
intended
practices
such
:
as
set
credit
of
types
for
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examination
to
focus
enforcement
CRA's
Shifting
all
among
CRA
of
objectives
the
promote
to
serve
also
.institutions
expansion
,not
in
interested
are
who
those
just
,
process
applications
the
to
limited
being
leverage
CRA's
with
not
institution
does
that
an
for
incentive
little
provides
law
the
aCRA
file
intend
application
-c
overed
aggressively
to
pursue
h,This
emphasis
of
shifting
-rowever
.CRA
activities
elated
examination
.cannot
system
acomprehensive
without
place
take
We
us
places
program
examination
compliance
new
our
that
believe
in
all
more
that
assure
vigilantly
position
the
to
able
be
the
institutions
that
strong
recognize
programs
CRA
We
.develop
currently
the
enabling
method
primary
the
is
process
applications
continue
that
use
to
will
we
and
CRA
the
enforce
to
Board
.
program
examination
enhanced
our
with
together
mechanism

19
18

XHIBIT
A

Handbooks

Compliance
The
and
Activities
Handbooks
w,Trust
hich

SPECIALIZED
PROGRAM
COMPLIANCE
FOR
MATTERS
TRUST
AND

part
are
system's
of
Regulatory
Handbook
e
mbody
,Series
the
written
principles
procedures
and
this
of
program
.new
In
addition
providing
materials
relevant
to
conduct
the
of

Federal
The
Home
Bank
Loan
Board
has
specialized
naestablished
ew

texaminations
handbooks
, he
alhave
arger
as
educational
role

examination
program
compliance
for
matters
trust
.'and
Implementation
this
of
program
new
begin
January
.will
1989

centerpieces
examiners
both
for
and
institutions
.member
Staffing
District
Each
will
shave
aBank
taff
dedicated
of
specialists
primary
whose
responsibility
be
will
conduct
the
compliance
of
and
These
individuals
.
examinations
trust
will
drawn
be
first
from
existing
the
examination
staff
then
and
outside
sources
,afrom
nd
individuals
bend
have
who
professional
desire
m
otivation
,athe

significant
tGenerally
, he
features
the
of
examination
new
program

comparable
path
career
that
to
general
for
examiners
.thrift

involve
use
the
specially
-tof
rained
examination
personnel
who
conduct
will
separate
examinations
for
compliance
the
trust
and

Training

areas
.

examination
All
personnel
involved
the
in
specialized
program
will
receive
training
both
in
rudiments
of
laws
the
and
regulations
and
examination
approach
philosophy
.in
The
will
System
sponsor
periodic
w
basic
-eek
two
schools
compliance
for
and
trust
matters
s
, upplemented
one
by
secondary
-w
eek
schools
.level
Topical
seminars
will
conducted
be
periodically
important
as
.
arise
issues

fAttachment
or
d
aASee
etailed
listing
the
of
applicable

1

Conduct
Examination

laws
and
regulations
covered
this
by
.program

Specialized
compliance
trust
and
examinations
will
conducted
be
op
xamination
"-a own
Tedtusing
.approach
his
approach
shifts
the

47

capability
to
examinations
cinvolving
ahandle
omplex
set
of
rdynamic
egulations
fiduciary
nd
principles
Individuals
.,alaws
become
who
part
this
of
specialized
program
will
provided
abe

Significant
Features
of
the
Specialized
New
Program

examination
individual
from
away
transactions
b
a,tfocus
oroad
based
internal
policies
p
rocedures
areview
,of
nd
supplemented
is
Tprograms
review
. his
evaluation
and
by
the
of
integrity
internal
these
of
through
systems
hypothesis
testing
.
approach
This
detailed
is
Compliance
the
in
Activities
and
Trust

examination
supervisory
attention
.and
Basically
institutions
ated
receive
r
a"1, egular
examination
on
ear
wacycle
,2-yargeted
ith
t
examination
conducted
eyery
other
2years
that
on
focuses
emerging
and
new
regulatory
or
trends

Activities
Handbooks
.

requirements
well
continued
as
reliability
the
of
institution's
basic
systems
I
nstitutions
rated
"2.operational
receive
rInstitutions
egular
a2examination
on
cycle
ear
.-y
rated
a
r
"43 nd
eceive
examinations
on
y
ear
cycle
.a1-regular
Institutions
rated
s
hould
receive
r
examination
a"5 egular
on
at
least
m
interval
deemed
a,6-sonth
appropriate
by
District
the

Examination
Reports
of
reports
Separate
institution's
am
to
board
directors
ofember
will
prepared
be
examinations
for
conducted
under
specialized
this
reports
These
comprehensive
be
will
.
nature
in
program
detail
and
examination
findings
n
athe
in
arrative
format
gives
that
reader
thorough
analysis
of
integrity
institution's
the
systems
strengths
weaknesses
and
reports
Ttheir
. hese
will
signed
be

Additionally
District
t, Bank
Banks
have
will
flexibility
the
.he
extend
these
intervals
response
unusual
to
circumstances
.in
Examinations
under
this
specialized
program
can
conducted
be

concurrently
separately
orafety
from
and
soundness
,swith

person
by
led
who
specialized
examination
.the

examinations
discretion
the
,aF,aturther
District
each
.of
Bank
.

District
Bank
decide
may
on
appropriateness
the
acof
oncurrent
or

Ratings

.
grading
scale
point

iexample
, fACRO
institution
receives
rating
2Man
a"4and
compliance
rating
c
examination
a
,atoncurrent
ccording
the
to

connection
Inxaminers
trust
examinations
will
assign
a,ewith

frequency
schedule
examination
next
the
be
would
one
in
conducted
t."4to
, he
year
that
ainterval
ccorresponds
ompliance
rating

rating
to
overall
the
imilarly
tS,trust
his
.area
system
involves
the
use
afofive
point
scale
.grading
Organizational
Structure
Examination
Frequency

Both
compliance
trust
and
examinations
will
follow
same
the
basic
. he
frequency
Tschedule
examinations
of
primarily
is
dependent
rating
upon
assigned
at
previous
examination
.the
lower
rating
more
,tThe
he
frequently
institution
the
is
be
to
examined
t
, hus
assuring
that
limited
examination
resources
are
directed
those
to
institutions
that
are
most
in
need
of

to
Due
wide
the
variety
organizational
of
structures
present
in
District
dBanks
, ecisions
as
to
placement
the
and
supervision
specialized
of
examination
function
within
District
the
Bank
matters
are
left
local
discretion
essential
I.to
towever
h
,is

determining
in
that
placement
supervision
and
the
function
,of
special
consideration
given
beeport
examination
scheduling
r
,to

versight
qoreview
uality
tassurance
, echnical
support
and
that

48

separate
examination
circumstances
as
apparent
connection
in
with
individual
an
institution
dictate
.may
where
situations
in
concurrent
examinations
conducted
interval
,tare
he
between
examinations
be
to
is
driven
the
by
rating
assigned
.lowest
For

connection
with
compliance
examinations
e
,Inxaminers
assign
will
institution
the
to
ratings
two
itself
compliance
for
,aone
nd
performance
CRA
for
one
.T
hese
systems
rating
involve
faboth
ive

ATTACHMENT
A

appropriate
follow
measures
-u
p
are
connection
in
taken
poorly
with
institutions
.assigned
Tan
hese
performing
duties
should
be
to
individual
w
( ho
ith
staff
needed
should
)as
given
be
the
responsibility
necessary
authority
and
fulfill
.to
them

Laws
and
Regulations
Covered
Under
the_Specialized
Examination

Attachment

Compliance
Bank
Secrecy
Act

Bank
Protection
Act
1968
P
art
563a
)(of
Civil
Rights
Act
1964
of
Rights
Civil
Act
1968
of
Community
Reinvestment
of
Act
1977
Delayed
Availability
Funds
Provisions
CEBA
of
cc
Regulation
Economic
Sanctions

Electronic
Fund
Transfers
Act
- egulation
ER
-

Equal
Credit
Act
i
(Opportunity
ncluding
the
LARS
)system

49

Equal
Employment
Opportunity
Fair
Credit
Reporting
Act
Fair
Debt
Collection
Practices
Act
FHLBB
Adjustable
Rate
Mortgage
Regulations
P
(Disclosure
arts

Trust

Trust
Powers
Federal
Associations
P
art
5
,(of45.102
)550
Relevant
provisions
of
:
the
Home
Owners
Loan
Act
1933
S
ection
)5(nof
Employee
Retirement
Income
Security
Act
1974
of
Securities
of
Act
1933
Indenture
Trust
1939
of
Act
Securities
Exchange
of
Act
1934
Internal
Revenue
Code
of
1986

Federal
Home
Loan
Bank
Board

):3
:1921
::
pis

o
i
s::$( en
:::

EXHIBIT
B

Memo

Attachment
to
AB
35
-

Simo
G
1700
:k
W

20557
,D
Washington
C

FEDERAL
SAVINGS
AND
INSURANCE
LOAN
CORPORATIO

Home
Teorial
Susiem
loni
loan
federal
home
Loan
Monc.pe
Coor's
:

Board
Bank
Loan
Home
Federal

COMMUNICATION
-OFFICE
INTER

Iederal
Savings
and
viance
ins
Coirn
.loan

FROM
:

1March
, 979
30

Robert
J.
Moore

T: O

,1979
18
April

:
DATE

Department
Examinations
of

:
SUBJECT

CRA
Ratings

Professional
Starr

,Supervisory
Elliott
A.
Raymond
agent
Federal
Board
Bank
Loan
Home
Boston
of
Bank
Loan
Home
Federal
2196
orrice
Box
Post
information
your
for
Attached
guidance
and
copy
is
al
of
sent
etter
orrice
by
District
of
Supervisory
the
to
agents
letter
The
.Banks

M
assachusetts
,02106
Boston

sone
gincludes
' uidelines
useful
assigning
for
ratings
.CRA

:
Re

guidelines
formal
Until
developed
are
agreed
and
enforcing
all
by
to
the

CRL
Ratings

:
Ray
Dear

please
agencies
guidelines
attached
the
use
overall
assessments
your
in
performance
the
associations
of
in
CRA
to
.regard

Direct
ty or
Depu

ce
ons
.
assessment
performan
such
examinati
of
reports
in
forth
set
as

nl
oro
ransmitta
ating
nd
Association
The
REvaluatio
)a(F
"T648
the
and
re
orm
"(Fbeing
Sheet
)aAnalysis
.16,8
rating
CRA
the
for
provide
to
revised

Examinations
of
Department
Attachment

:
assigned
be
should
rating
one
only
that
oecided
Commiitee
Coordinating
The
report
g
a
on
.based
examination
of
Fiven
,t
Agency
this
that
means
his
or

,Deach
EIC
the
while
istrict
Supervisory
and
Director
will
Agent
be
,they
performance
institution's
an
rate
individually
to
required
all
must
.Sistrict
rating
on
,Dagree
EIC
:the
agen
Supervisory
or
Director
hould
:,the
trating
Distric
he
unable
be
agreement
reach
to
appropriate
on
ajoint
submit
must
agent
Supervisory
and
Director
summarizing
memorandum
,Dofepartment
Director
Deputy
issues
the
to
and
Supervision
Final
Director
,DDeputy
afOperations
for
Examinations
of
ield
epartment
.
decision

receive
which
associations
For
PA
nCis
4oto
of
a5,trating
eed
rhere
ptheir
' nrrogress
associations
the
,omonitor
thereof
i-lack
chih
roving
Supervisory
h
,t
agent
. he
examinations
between
persorcance
ccordingly
consulting
arter
with
,wthe
Director
District
for
responsible
be
ill

the
to
submitting
bregional
rief
summarizing
memorandum
(a)tDirector
he
which
led
factors
to
4
the

50

m
978
mentioned
,1Inter
15
December
memorandu
he
in
tAgency
As
my
dng
determine
Coordinati
will
Committee
has
each
that
agency
Tate
ns
ce
oased
cale
onRA
Cinstitutio
asperforwan
ton
I
'5bof
examiners
the

Robertf
hone

Attac
hment
to
AB
3
5

Attachment
to
AB
3
5

par.9
Ellio
1: 0pervisory
H.
::
,S
mennt

Fernand
E.
::
upervisory
hsen
:,SEllio
3
Page

2
ce

Satisfation
The
associ
actory
ation'
conmun
s
deline
ity
appear
reason
s
able

inieric
siatus
report
must
filed
be
with
regional
Director
.the

it
and
taken
has
steps
to
identi
meet
help
fy
credit
the
needs
its
of
entire
. he
ity
associ
Tcommun
ation's
lendin
record
gity
in
commun
its
appears
adequa
legal
te
e
,when
conomi
busine
or
ground
c
ss
taken
are
s
into
consid
associ
The
.
eratio
loan
ation'ns
polici
practi
and
es
must
ces
comply

with
the
bank
Board'
nondis
snts ation
crimin
tions
C.regula
omplai
allegi
ng
discri
unacce
or
minati
perfor
CRA
on
ptable
must
mance
have
been
resolv
in
ed
associ
favor
ation'
the
or
instit
must
ution
have
taken
appropriate s

.

Other
assigning
than
the
O","words
utstanding
ood
SG
atisfactory
"phe
eeds
nsatisíactory
"tUaImprovement
ond
the
numerical
,tratings
Coordinating
Committee
not
has
reached
agreement
on
criteria
the
used
be
to
assigning
in
overall
rating
O.the
rating
t, bviously
he
must
take
into

correct
action
ive
.
Needs
Improvement
association's
The
compunity
delineation
does
not
appear
consistent
spirit
the
with
intent
oCRA
/or
and
r
association

consideration
each
of
the
twelve
factors
listed
Section
563e.7
.in
This

taken
has
rew
f
p
,i
any
roductive
steps
identify
to
and
help
the
meet
credit
needs
its
community
association's
the
or
efforts
recent
so
are

requires
that
institution's
an
performance
under
one
factor
weighed
de
subjectively
terms
inowever
its
of
performance
under
other
Hfactors
,.the
the
violations
material
of
Bank
Board's
nondiscrimination
regulations
cannot
mitigated
be
other
by
CRA
nless
.Uperformance
corrected
s,violations
uch
will
result
in
unsatisfactory
5an
.of
Prating
ending
the
issuance
more
of
specific
guidelines
by
Coordinating
the
Committee
may
,you
find
helpful
the
following
discussion
some
of
the
which
Ifactors

their
that
probable
impact
cannot
adequately
T
he
assessed
examination
.be
report
does
not
disclose
any
caterial
violation
of
the
Board's
Bank
nondiscricination
regulation
or
r
violations
, epetitive
numerous
the
of

ptechnical
/ rocedural
requirement
of
nondiscrimination
the
or
regula
Cra

Although
institution
cannot
fully
tion
justify
.
the
of
lending
lack
in

pcommunity
,its
articularly
low
oderate
income
tneighborhoods
,/min
here
clear
are
indications
that
the
institution
is
becoming
increasingly
aware
coquunity
its
or
responsibilities
that
and
improvements
its
in
perform
CRh

believe
should
considered
in
assigning
the
overall
rating
.be
ance
can
reasonably
anticipated
.be

furthering
objective
the
s
.of
CRA
T
his
will
usually
be
evidenced
its
by
errorts
aggressive
acting
in
various
with
concert tal
governmen
and

community
groups
identify
to
the
special
credit
needs
community
its
,of
particula
innd
low
oderate rly
income
neighborh
oods
by
a,/mthe
efforts
its
helping
innd
meet
to
such
credit
needs
vthrough
ariety
effective
,aof
arketing
e
lmoften
ending
and
redevelop
programs
ment
.,innovativ
The

because
of
either
the
follow
reason
ing
:
s

sfacto
associ
nnsatis
ryy
should
ation
normal
be
rated
ly
"O-AUnsati
factor
examination
The
report
udiscloses
,material
nresolved
violations
of
Bank
the
Board's
nondiscrimination
regulations
or
numerous
repetitive
violations
technical
pthe
/ rocedural
requirements
of
nondiscrim
the

.
1

associati
normally
on
will
have
devised
prudent
programs
to
help
meet
the
needs
credit
its
of
community
the
in
face
even
of
legal
or
economic

ination
CRA
orr
o,regulations

impediment
will
and
have
committed
substanti
manageria
al
resources
ls
to
errorts
.its

51

Outstanding
associati
The
has
assumed
active
an
leadershi
role
pon
in

association
The
cannot
provide
reasonable
any
justification
for
its
community
delineation
its
lending
of
its
lack
or
in
,community

.
2

Good

particularly
m
/in
oderate
income
areas
,low
waterial
a
nd
improvements
its
in
CRA
performance
cannot
reasonably
be
anticipated
in
light
of
.
management's
attitude
а

have
you
If
suggestions
any
regarding
foregoing
pcomments
lease
,the
us
let
. eopefully
wHour
,know
will
time
have
discuss
to
CRh
the
rating
at
fansas
Doeting
City
April
on
201h
lith
.and

Sincerely
,

fun
Zaves
Mcbride
W.
Director
:CC

District
Director
Seacan

A: dministration
CHAPTER

SECTION
:ofssignment
ARatings
Introduction

C
EXHIBIT

SECTION
: ssignment
A
of
Ratings

Section
110-2

fashion
c,tand
uniform
omprehensive
inhe
areflect
nature
with
compliance
institution's
an
of
extent
and
statytes
protection
consumer
and
rights
civil

divided
isart
section
This
two
:Pinto
A-parts
C
om
,and
System
Rating
Bpliance
Part
Sys
-C
RA
.Unless
tem
the
examination
an
of
scope
is

specifically
to
altered
phase
one
a,f(eeliminate
.g.
or
examination
targeted
orach
compliance
e),special
examination
gaddress
(1)will
both
eneral
compli

of
purpose
primary
The
Sys
Rating
Compliance
the

ratings
arate
given
are
these
to
rareas
,two
espec

takes
;although
tively
also
Rating
CRA
the
into
Compliance
general
the
account
with
Rating
regard
violations
to
nondiscrimination
of
consumer
and
regulations
protection
.credit

Part
o(s)rvestment
B
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Activities
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1989
March

Handbook 110-2.1
Regulatory
FHLBS

110-2.2
Compliance
Activities

Omad

March
1989

Activities
Regulatory

11-24

relative
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52

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110-2
Section

ASECTION
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Ratings
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SECTION
A
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Section
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3
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of
Office

Activities
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1989
March

priate

Handbook
FHLBS 110-2.3
Regulatory

110-2.4
Compliance
Activities

of
Office

1989
March

Activities
Regulatory

53

following
questions
The
meant
are
guide
as
solely
lines
for
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nswers
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ing
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to
violations
future
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further

Section
110-2

ASECTION
Ratings
ssignment
:of

:Assignment
SECTION
Ratings
of

110-2
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hus
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Activities
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110-2.8

1989
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Activities
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SECTION
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220
Section
assessment
CRA
twelve
all
of
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factors

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ment

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Level
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Level
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ialogue
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s
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5
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Level
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b,-iand
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1
Level
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each
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demonstrates
statement
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of
type

(c).by
563e.4
CFR
12
encouraged
information

2
Level
Assessment

r
organizations
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nd
ahood
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tions
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and
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pletely

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rected

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s
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grams
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agement
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.The
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-existent
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CRA
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in
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needed
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oan
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volume

-iareas
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and
delineated
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within
ncome
of
Office

Office
of

Activities
Regulatory

1989
March

Handbook
Regulatory
FHLBS 110-2.9

Compliance
110-2.10
Aqivities

1989
March

Activities
Regulatory

56

eakness
win
or
,aFthan
example
.geo
Category
one
relate
may
III
Category
under
distribution
graphic
under
efforts
inmarketing
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to
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dential

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keting

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priate
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opment

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lthough
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below
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1
Level
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deposit
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(h)Included
factors
assessment
are
category
this
in
(1).
and

Extended
and
Offered
Credit
of
.Types
II

ASECTION
: ssignment
Ratings
of

oneeded
,r
business
credit
farm
small
the
in
,inncluding
-icommunity
moderate
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lowncome

neighborhoods
particular
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s
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nd
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accessible
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nd
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known
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ination
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nd
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Aspe
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sthis
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ubstantive
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,aFor
of
purposes
nondiscrimination
laws
of
tion
is
regulations
and
of
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any
or
Act
Housing
Fair
Equal
the

Opportunity
,oCredit
Act
implementing
r
regula

credit
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/or
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raised
in
examinations
prior
resulted
have
than
less
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ade

provisions
(including
tions
System
Bank
of
regula
wthe
), here
528
Part
C.F.R.
12
tion
has
institution

.
institution
the
by
responses
quate

criteria
credit
pdiscriminatory
aused
in
rohibited
5
Level
Assessment

,has
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evaluating
in
manner
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furnish
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credit
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adverse
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provide
to
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geographic
The
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applications
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reveals
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patterns
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or
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engaged

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imoderate
-and
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indicates
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oan
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acited
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G(III
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ssessment

trict
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otising
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Level
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be
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based

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credit

statements
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in
implemented
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1Level
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strong
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institution
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procedures
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manage
and

formly
available
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There
no
is
indication
that
applicants
for
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credit
being
are
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on
basis
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geo
graphical
location
orhe
prohibited
other
basis
.Tany
institution
periodically
reviews
geographic
the
dis
tribution
of
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nd

mechanisms
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reporting
.

2
Level
Assessment

institution
The
to
found
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be
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nondiscrimination
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ance
regulations
and
.Ilaws
t

denials
W
here
. ow
review
disclosed
lhas
athat
level
of
Office

Activities
Regulatory

March
1989

57

low
activ
of
areas
target
to
programs
marketing
cial
posi
taken
has
,the
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may
ity
institution
clearly
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tion's

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rimarily
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psuggest
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Statement
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.Itotherefore
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e

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he

Assessment
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Level

institution
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ings
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5
Level
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N(IV
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ssessment

Assessment
4
Level

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nel
trained
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pursue
to
involvement
private
in
government
and
sponsored
Statement
.The
programs
CRA
institution's
be
may

Section
110-2

agrees
.Management
tice
readily
areas
all
address
to
regarding
concern
credit
of
patterns
and
activity

hours
office
and
nity
the
meet
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customers
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of
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ience
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4
Level
Assessment

.

SECTION
A: ssignment
of
Ratings

110-2
Section

110-2.11
Regulatory
Handbook
FHLBS

110-2.12
Compliance
Activities

Office
of
1989
March

Activities
Regulatory

SECTION
A
: ssignment
Ratings
of

110-2
Section

to
procedures
and
policies
internal
adopted
has
continued
compliance
aassure
, lthough
program
the

Assignment
Ratings
of

:
SECTION

1
Level
Assessment

"sidentifiable
ofactors
,bnot
itself
ther
fhould
e

110-2
Section

3
Level
Assessment

negative
.
seen
as
full
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be
to
found
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institution
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under
i.Level
cited
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as
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imple
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laws
.Iand
t
protection
credit
con
its
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mented
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compliance
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and
internal
,and
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policies

3
Level
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institution
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with
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and
.Ilaws
nter

.
mechanisms
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Level
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and
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ance
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nd
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agement
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iscrimination
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appear
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nd
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dent

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ment
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nity
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and
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ning
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wbeen
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hich
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community
meet
,within
categories
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.covered
months
six

4
Level
Assessment
.

institution
The
substantial
in
is
noncompliance
with
nondiscrimination
regulations
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iolations
.laws
and
substantive
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ndicative
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of
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has
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regulations
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pliance

violations
practice
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aclear

tern
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discrimination
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continued
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previous
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ibe
ndividual
indicated
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protection
laws
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credit
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cism

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may
encourage
regulation's
CRA
the
of
unaware
be
of
ment
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involvement
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development
r/programs
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5
Level
Assessment

lack
its
demonstrated
repeatedly
has
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of
develop
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if
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in
interest
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community
its
in
exist
projects
ment
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expressed
response
own
its
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interest
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.to
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community

Practices
Credit
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Level
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here
undertaken
assessment
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the
reflect
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examination
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,other
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ecrimination_
Lending
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,Fin.T( .gruth
air
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R
Collection
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,a
Bank
nd
ESPA

).Iwill
535
Part
C.F.R.
12
regulation
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there
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review
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comments

The
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is
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iolations
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at
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tern
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tion
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:Under
Note
assessment
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receive
bassessment
ut
,not
factors
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under
fall
credit
of
needs
meet
the
help
deemed
to
are
which

of
absence
,t.Hitshe
owever
community
entire

of
Office

Activities
Regulatory

March
1989

110-2.13
Handbook
Regulatory
FHLBS

of
Omae

110-2.14
Compliance
Activities

March
1989

Activities
Regulatory

58

5
Level
Assessment

PAGE
1

BY DISTRICT
1983

2

3
2

4

59

5
5

1

77
180
160
307
222

2
16
12

5

1

.NO
NNO•
.N

1

omtomo
Novo

1
1

14

5

7

1943

4

20

1

6

2

2

2
1

1

4

3

149
291
208

1755

2

1
1

1

6
3
6

14

85

2
6
5

16
8
3
2
2
8
4
16

71

53
132

2
6
1

5

4

નનં.

2

.

1

AGGREGATE CRA RATINGS

01
02
03
04
05
06
07
08
09
10
11
12

* TOTAL YEAR 1983

1

AGGREGATE CRA RATINGS
BY DISTRICT
1984

01
02
03
04
07

05
06
08

09
10
11
12

* TOTAL YEAR 1984

‫ܐ‬
‫ܬܢܙ‬
‫ܐ‬
‫ܚ‬
‫ܗ‬
‫ܩ‬
‫ܕ‬
‫ܗܬ‬
‫ܗ‬
‫ܢܩ‬

TOTAL

EXHILIT D

84
185
162
325
234

2046

TOTAL

60
137
150
311

217

1849

60

PAGE

2

AGGREGATE CRA RATINGS
BY DISTRICT
1985

3

4

54
148

1

ż

300
203

1
1

2
2
3
8

3
1

1
3

.

10
11
12

10
1
3
15

TOTAL
67
155

WP
.

Ñ
. üw
vi

08
09

5

122

W.
OO

07

1
2
2

‫ܕܰܝܕܚܩܣܗ‬.

06

119
269
189

‫ܝܕ‬

01
02
03
04
05

‫ل ا‬
‫ی‬

2

12
7

1

* TOTAL YEAR 1985

102

1529

22

10

1670

AGGREGATE CRA RATINGS
BY DISTRICT
1986

3

4

01
02

8
4

53
167

1

62

1

03

2

172
109

04
05
06
07
08
09

13
4

107
260
193

&

277
201

18

3
2
1
2
9

5

TOTAL

i
10

16

10

‫ܗܤܘܚ‬.

‫ܘܝܚܝ‬

‫ءسا‬
‫م ں‬
‫ی‬

2

1

16
1

11

12
* TOTAL YEAR 1986
86

1903

40

13

2045

61

PAGE

3

AGGREGATE CRA RATINGS
BY DISTRICT
1987

2
1

un

2

3

4

15
9
5
13
12
5
6
1
27
18
16

57

1

144
136
409
272

1

131

2
1

1

3

1
2

л
оРоол
UN
о

PN

01
02
03
04
05
06
07
08
09
10
11
12

NNMON•

1

9

221
153
220
107
83
81

136

2014

Š

TOTAL

5

73

154
141
429

286
141
231

2
2

8
1
7

158

258
126
110

90

* TOTAL YEAR 1987
2197

12

31

AGGREGATE CRA RATINGS
BY DISTRICT
1988

1

3

17
8
5
14

34
143

AU
ANO

01
02
03

2

04

TOTAL

5

4

51
152
101
343
182
104

10

.

2

20

2
6
1
10

18
21

6

8

2

06
08
09
10
11
12

1

226

1

135
273
84
94

•

:POO

07

‫ܘܰܝܕ‬.

05

.

5

62

126

1631

8

* TOTAL YEAR 1988

1807

8

39

AGGREGATE CRA RATINGS

1

21

TOTAL

22-155 O - 90 - 3

2

3

4.

606

10775

166

un

BY DISTRICT

5

46

TOTAL

11614

NCHAPTER
: ondiscrimination
Reinvestment
Act
C
: ommunity
SECTION

E
EXHIBIT

Act
Reinvestment
C
: ommunity
SECTION

220
Section

of
directors
board
the
requires
regulation
The

sRA
)i(C
Act
Reinvestment
Community
The
the
meet
help
to
lenders
encourage
intended

least
annually
at
and
adopt
to
institution
each
must
statement
T
.C
Statement
RA
a he
review

ncluding
,icredit
communities
entire
their
of
needs

to
assistance
substantial
of
be
will
and
fact
that

to
institutions
encourages
regulation
,tInhe
essence
of
needs
credit
range
full
the
of
aware
become
credit
of
types
the
offer
to
and
communities
their
to
help
will
that
services
rmeet
- elated
credit
and
does
tHnot
regulation
owever
,those
. he
needs
or
types
particular
offer
to
institutions
require

Regulation
CRA

Introduction

w,neighborhoods
:
nd
ncome
ahile
-ilow
moderate
include

.their
performance
assessing
in
examiner
the
nd
Legal
aInstitution's
,and
Size
Condition
Financial
Conditions
Economic
Local
and
Impediments
community
meet
help
to
ability
An
institution's

.of
credit
amounts

to
institutions
for
necessary
the
flexibility
preserving

220
Section

condition
financial
its
by
influenced
is
needs
credit

community
each
ap
mon
of
aelineation
dlocal

.asinafe
manner
sound
and
operate

local
and
impediments
legal
by
well
as
size
and

.the
institution
by
served

n
.A
operates
it
which
under
conditions
economic

Examinations
for
Background

:
CRA
the
by
required
is
Board
Bank
The

into
considerations
these
take
must
examiner

insti
the
that
credit
of
types
specific
the
alist

com
local
each
in
extend
to
prepared
is
tution

.the
performance
institution's
reviewing
in
account

General

.
munity
is
Board
,twith
Bank
examinations
Inhe
connection
.Tan
record
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institution's
assess
tohe
required

Notice
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the
of
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.

of
dits
aCRA
Statement
inescription
include

to
credit
the
meet
helping
of
record
institution's

credit
community
meet
help
and
ascertain
to
efforts

needs
of
its
community
entire
.

compliance
technical
for
check
will
examiner
The
,.ofowever
H
regulation
requirements
the
with

pro
this
assessment
ajor
amplays
in
role
cxaminer
as
supervisory
such
personnel
other
,with
cess
applica
and
officers
investments
cagents
, ommunity
making
in
findings
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the
using
staff
tions

also
to
institution
each
encourages
regulation
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examination
its
with
nn
i,a
connection
assess
to

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the
with
Compliance
Technical
not
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requirements
procedural
with
compliance
credit

local
serving
been
has
ender
limply
athat
nalso
;is
true
he
Tneeds
converse
. oncompliance

.on
applications
judgments

.
needs

account
into
record
that
take
to
an
evaluating
in
insurance
,aceposit
dapplication
for
harter
relocation
,facility
deposit
obranch
ffice
other
or

lenders
local
situations
which
in
,with
things
other

areas
toreportedly
other
deposits
local
exported
opportunities
.Slending
dis
uch
local
sound
despite
athreat
considered
was
investment
community
to
,tvitality
,are
herefore
.Land
enders
neighborhood

credit
cdetermination
,itsommunity
meet
help
to

local
hous
to
attention
increased
give
encouraged

rural
urban
and
of
needs
development
and
ing
lending
such
to
.Increased
areas
sensitivity
lender
.
revital
preserve
,arneeds
ehabilitate
nd
years
help
would
.Moreover
neighborhoods
such
,eize
though
ven

in
bear
should
examiner
t,Inhe
record
the
reviewing

maintain
should
examiner
The
perspec
abalanced
T
examination
.exam
conducting
aC
RA
tive
inhe
basis
of
any
normally
the
on
conclude
cannot
iner

credit
available
publicize
to
and
needs
credit
nity

credit
the
identify
to
measures
iservices
, ncluding
moderate
and
ow,lto
in
advertise
aneeds
ofnd

., re
aencouraged
neighborhoods
income
Contacts
Outside

Input
Institution's

.and
resources
skills
particular
its
of
view
in
nity

inter
conduct
normally
should
staff
examining
The
the
determine
to
members
community
with
views
uch
Scredit
.needs
community
of
perception
local
corpora
development
local
include
might
members
,, onprofit
corporations
development
housing
ntions

institution
each
procedures
give
examination
The
indicating
information
supply
to
opportunity
the

will
record
CRA
institution's
an
of
assessment

The
ariety
of
vevaluating
ain
account
into
taken
be

both
and
communities
for
beneficial
as
viewed

commu
ascertain
to
fforts
eHneeds
ence
,.nity
credit

one
source
any
of
basis
the
on
performance
lender's
opinion
,t.Foof
reason
that
or
dhe
information
ata
r
designed
to
section
are
in
this
contained
procedures
institution
the
both
from
that
information
ensure
and
reviewed
objectively
are
community
the
.
evaluated

itin
how
determining
flexibility
considerable
tion
commu
entire
its
of
needs
the
meet
to
help
best
can

.
institutions
financial

commu
about
informed
well
is
lender
the
and
ble

meet
com
or
community
local
its
of
needs
credit
the
.Nor
amunities
assess
adequately
examiner
the
can

ncome
-moderate
ialow
nd
of
those
, ncluding
ineeds
kinds
the
indicates
factors
of
list
Tneighborhoods
. he
not
are
nstitutions
.be
Iconsidered
to
of
activities
list
the
on
activities
particular
adopt
to
required
institu
each
allow
to
designed
isthe
regulation
since

rules
or
fast
and
hard
inject
to
intended
not
is
CRA
examination
the
into
ratios
application
processes
.or
evalua
jcontemplates
udgmental
a
,the
Rather
law
accommodate
record
to
order
ain
ofender's
ltion
CRA
insti
require
.Nor
does
circumstances
varying
jeopardize
their
that
loans
risk
high
make
to
tutions
communities
are
revitalizing
and
.Rebuilding
safety

when
met
be
to
likely
more
are
basis
sound
and

safe
availa
credit
of
types
the
aware
is
community

to
helping
isnot
or
is
institution
an
that
factor
one

its
with
connection
in
consider
will
agency
the
insti
each
of
assessment
its
making
in
examination
credit
community
meet
to
helping
of
record
tution's

ser
and
community
facilities
provide
credit
of
types
vitality
,mfor
and
ore
neighborhood
necessary
vices

effec
on
CRA
by
placed
emphasis
special
the
mind
development
community
and
communication
tive
t,to
prem
communication
respect
ith
.Whe
activities
abe
on
met
can
which
needs
community
that
is
ise

Balanced
Viewpoint

that
factors
twelve
of
lforth
aist
sets
regulation
The

community
.local
hgenerally
,aealthy

ncome
-INeighborhoods
Moderate
and

.
cumstances

two
past
the
during
received
comments
public

community
and
housing
local
for
credit
develop
that
other
realized
,iment
was
t
emphasized

Low
aDevelopment
, nd
ommunity
CCommunication

cir
local
and
resources
its
of
context
the
in
needs

,agency
supervisory
the
from
request
may
public

.by
CRA
covered
applications
of
announcements
CRA
of
file
ublic
pkeep
aEach
must
institution
elated
rCRA
-two
and
years
past
the
for
Statements

local
its
influence
on
bhaving
athat
iseneficial
it
that
are
Icommunities
.ornstitutions
community

.by
institution
the
applications

,housing
corporations
development
community

are
proud
credit
needs
community
meet
helping
to
of
Office

of
Office

Activities
Regulatory

March
1989

Handbook
Regulatory 220.1
FHLBS

220.2

Activities
Compliance

1989
March

Activities
Regulatory

62

the
to
submitted
be
may
performance
lending
nity
ile
fat,or
of
hat
agency
supervisory
its
institution
the
that
nd
aavailable
,is
publicly
comments
such

,among
concerned
were
CRA
the
of
Proponents

tech
for
checking
in
statute
of
intent
the
sight
entire
he
.Tthe
regulation
with
compliance
nical
deter
to
primarily
designed
is
examination
CRA
is
and
helped
has
ender
lwhich
ato
extent
the
mine
.community
needs
credit
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Act
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220
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Office
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Activities
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1989
March

220.3
Handbook
Regulatory
FHLBS

220.4

Activities
Compliance

March
1989

Activities
Regulatory

63

.
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Built
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TStructures
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Family
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Act
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Reinvestty
Communi

:
SECTION

220
Section

Act
Reinvestment
C
: ommunity
SECTION

feasi
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220
Section

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of
Office

Activities
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of
Office

Activities
Regulatory

1989
March

Handbook 220.5
Regulatory
FHLBS

220.6

Activities
Compliance

1989
March

的

CSECTION
: ommunity
Reinvestment
Act
Ascertain
from
through
and
records
interview

Act
Reinvestment
Community

:
SECTION

220
Section

programs
counseling
ortgage
(2)pro
mand

sing
community
ampling
aof
and
management

extent
the
groups
interest
and
leaders
to
which

220
Section

needs
credit
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its
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For

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and
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65

with
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articularly
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hether

•

of
Office

of
Office

Activities
Regulatory

1989
March

Handbook 220.7
Regulatory
FHLBS

220.8

Activities
Compliance

Activities
Regulatory
1989
March

1

Act
Reinvestment
CSECTION
: ommunity

Act
Reinvestment
C
: ommunity
SECTION

220
Section

efforts
.Local
preservation
neighborhood

220
Section

.in
practices
or
policies
dexceptions
deficiencies

,cneighborhoods
on
-income
moderate
and
lowing

commu
meet
various
to
ability
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k.The
.
operation
sound
and
safe
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sistent

examina
the
for
statement
arrative
nPrepare
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Corporations
.
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).( ee
110-1
Section
sreport
tion

).C
220
(the
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CRA
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10.A

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.
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:
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ee
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ascertained

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oinority
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References

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ness

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Federal
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66

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ment

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meet

of
Office

Activities
Regulatory

of
Office

Activities
Regulatory

1989
March

Handbook
Regulatory
FHLBS 220.9

220.10

Activities
Compliance

1989
March

67

Community Reinvestment Act

Yes No

1. Has the Board of Directors adopted its

Yes No

12. Are public files readily available for public

2. Is the CRA Statement clear and concise ? ...

3. Have all changes in the Statement been

4. Do the minutes indicate annual review of
15. Does the lender's delineation of commu

5. Does the Statement contain :
a. A delineation of the institution's entire

b. A list of the types of credit the institu

18. Are the kinds of loans made by the institu
c. The required notice either as a part of

19. Are all lending personnel informed of the

6. Is a notice providedin the public lobby of

8. Are the CRA Statements readily available

23. Did the institution review the CRA State

Note: These items are not required to be included in the CRA State
ments. Such inclusion is only encouraged by the Regulation.
Reviewed
By
CA 220 ( 03/89)

Community Reinvestment Act

1 of 2

68

Community Reinvestment Act
Yes No

24. Does the institution consult with members

Yes No

a. Residential mortgage ? ; .

b. Housing rehabilitation ?; ..
c. Home improvement/equipping ? .........
d. Small business ?;
e . Small farm ? ..........

Comments

Reviewed
Date

By

CA 220 ( 03/89)

Community Reinvestment Act

2 of 2

69

EXHIBIT F

Average CRA Hours Per Examination
By Asset Size Ranges

<
Year

$ 25M

Avg . Hrs .

$ 25-100
Avg . Hrs .

3.66
3.09

4.82

1986
1987

2.91
4.17
3.57

4.57
5.88
5.20

1988

4.84

Total

3.75

1983

1984
1985

NOTE :

$ 100-500
Avg . Hrs .

$ 500+

Avg . Hrs .
11.46

6.24

6.83
6.62
6.47
9.40
7.12
9.12

5.21

7.67

16.83

3.91

Total

Avg. Hrs .
5.87
5.46
5.82
8.20
7.92

8.89

Asset size ranges are in millions of dollars

7.19

70

EXHIBIT G
1700 G Stroot. N.W.
Washington, D.C. 20552
Foderal Home Lom Bank System
Federal Home Lom Mortgage Corporation

Federal Home Loan Bank Board

Federal Savings and Lom haurence Corporation

July 17 , 1989

The Honorable Henry B. Gonzalez
Chairman
Committee on Banking , Finance

The next logical step in data collection , reporting , and

analysis relating to equal housing lending is to make such
requirements mandatory for all lenders . Such an expansion will
improve our knowledge and allow targeting of programs to meet
individual and community credit needs .

71

We do suggest that some provision be made for the monitoring
of reporting by newly- covered mortgage lenders . A federal agency
should be assigned clear authority to monitor and enforce the
reporting requirements of lenders not currently regulated by a
federal financial regulatory agency
.

At the same time , we urge the Congress to recognize the
financial markets are constantly becoming more national , and even
international , in scope and that regulatory efforts to confine
financial institutions to serving only limited , localized
geographic areas can make these institutions more vulnerable to

fluctuations in local economic fortunes .

Such efforts are thereby

in conflict with the important goal of promoting the safe
soundness of these institutions . What is needed is a balanced
approach--one that avoids allowing lenders to diversify carelessly

into new product lines or geographic areas , thereby endangering
safety and soundness and ignoring local customers , but also one

that avoids confining these lenders to uneconomic activities or
insufficient diversification .
såncerely ,

Denn

Shell

M. Danny Wall
Chairman

Jawane prite
Lawrence J. White
Board Member

1

72

Senator Dixon. Thank you, sir.
Mr. McDowell.

STATEMENT OF JOHN H. McDOWELL, DIRECTOR OF CONSUMER

73

The examiners then review the bank's loan policies and credit
approval standards to ensure that, considering its resources and fi
nancial condition, it is helping to meet those needs.

BANK RATINGS

Banks may be given CRA ratings ranging from 1 to 5. The top
rating a bank can receive is 1. A rating of 3 is given to banks
whose CRA performance is less than satisfactory. A 5 rating repre

sents a substantially inadequate record of helping to meet commu
nity credit needs.

74

formance, the OCC will of course make the necessary adjustments
to comply with the act.

-2
:
Release
For

1:00
31
,2July
p.n.
989

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.

OF
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.
compliance
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,DIRECTOR
MCDOWELL
H.
JOHN

Program
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75

,Iahere
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fforts
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RA
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identified
of
basis
the
on
solely
banks
.Another
problems

the
showing
2Attached
,iAppendix
testimony
this
at
soable
by
in
examiners
bank
national
used
factors
assessment
twelve
examination
CRA
general
and
performance
the
under
abank's
evaluating
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.
for
each
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procedures

-6

CRA
Ratings
:Results
Examination
District
By
Ratings
CRA

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551
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316

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ulo PO PNP

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In @ WON

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)(1985

8
-

and
course
ac
take
to
required
are
examiners
All
-s
self
tudy
ompliance
produced
in
occ
the
by
consumer
laws
protection
a40our
-h
on
tutorial
A
,a
n
.abdditionally
association
trade
with
anking
cooperation
.required
examiners
all
for
school
is
consumer
-day
eight

Managamant
Bank
to
Reports

Results
:
Examination

to
provided
report
is
examination
the
of
part
integral
An
the
of
results
the
summarizing
management
and
directors
bank

assessment
examiner's
the
T
normally
report
contains
. he
examination
improving
that
and
for
recommendations
performance
CRA
bank's
the
of
T
performance
improve
or
enhance
to
recommendations
. hese
performance
the
management
at
directors
of
board
and
with
discussed
also
are
. igh
examination
the
of
hThis
aconclusion
promote
helps
guidance

level
of
performance
.CRA

have
examiners
who
of
number
the
reflects
table
following
The
1986
e
year
through
nd
training
i
,f
CRA
rom
ncluding
consumer
received

who
reflect
examiners
the
chart
of
in
figures
majority
The
.
1988
consumer
/Creceived
RA
examiners
1985.
other
Many
since
hired
were
1986
.
to
prior
training

CRA
to
Devoted
Time
Examination

yasked
for
ou
Mr.
invitation
of
letter
your
,In
Chairman
examiner
e
examinations
CRA
on
information
,a
time
nd
xamination
Intraining
by
assessed
is
performance
CRA
that
previously
. oted

devoted
.compliance
CRA
to
is
examination
estimate
Be
this
on
ased
,w

Field
of
No.

Examiners
of
No.

District
Southeastern
Western

Midwestern
Northeastern

Southwestern
Central

239
273
308
313
501
353

122
124
194
202

78

conduct
and
we
that
examinations
compliance
all
during
examiners
.CRA
examinations
targeted
during
The
precise
have
not
does
OCC
-site
to
specifically
devoted
time
of
amount
the
on
information
CRA
approximately
that
,w
However
estimate
.e
examinations
percent
20
of
of
portion
protection
consumer
spent
time
the
-s
on
anite

249
197

examining
spent
has
OCC
time
of
amount
the
calculated
have
for
CRA
.with
calculations
Those
compliance
in
presented
are
the
.
table
following

the
Process
Application
through
Performance
CRA
Encouraging
Examinations
CRA
Bank
by

Devoted
Workdays

Examined
Days
Work
Bank
Per
1987

Size
Asset

$50
Under
million
50
$1
to
million
00
100
$3
to
million

300
$1b
to
million
illion
billion
$11b
to
0illion
billion
$10
Over

2.5
2.5
3.0
4.5
9.0
16.5

2.0
2.7
3.4
5.6
8.1

21.0

Examiner
Training
corporate
of
disposition
the
for
procedures
and
policies
OCC
.Those
comment
public
for
opportunities
extensive
offer
applications
:
regulation
our
of
provisions
certain
in
found
be
may
opportunities
5"Rnd
Part
CFR
12
ules
procedures
p
,a
olicies
corporate
for
activities
."

10
-

,section
particular
In
an
requires
regulation
that
of
5.8
publishing
aby
application
its
notify
of
public
the
to
applicant
community
the
circulation
general
.in
newspaper
of
a"..
notice
shall
T
notice
he
business
.proposes
in
engage
to
applicant
the
which
notice
,filed
date
the
being
of
as
application
is
an
that
state
(s)and
applicant
the
of
name
contain
shall
notice
and
requirement
addition
the
to
application
."I
ofn
matter
subject

specific
conditions
with
approved
applications
has
OCC
The
performance
.requiring
CRA
their
strengthen
to
banks
applicant
the
the
t
consummate
cannot
banks
, he
circumstances
such
Under
.

concrete
the
to
evidence
provide
they
until
question
in
transactions
As
esult
strengthened
been
has
performance
CRA
their
that
OCC
.,ar
substantial
with
provides
occ
the
approach
approval
conditional
ab
CRA
ank's
improvement
tying
of
leverage
explicitly
by
enforcement
objective
.T
his
of
ad
esired
achievement
its
performance
to
through
the
benefit
communities
,and
produces
results
procedure
Iconditions
,o
fmposed
n
i
.occ
to
-in
the
made
response
improvements
denied
,t
not
may
bank
application
simply
was
hand
other
the
he
community
would
the
and
improvements
performance
implement
CRA

npublishes
otification
aOCC
tapplicant
he
,by
notice
the
public
for
Bulletin
.in
Weekly
its
applications
of
disposition
and
receipt
denial
.the
from
benefit
no
experience

79

measured
is
assessment
CRA
institution's
An
past
its
by
credit
community's
delineated
its
meet
to
helping
in
performance
made
,cneeds
general
In
process
application
the
during
. ommitments
aseriously
overcome
to
used
be
cannot
CRA
of
record
deficient
.

performance
.

Protests
Act
Reinvestment
Community

Year
of

Action

of
Type

of
Number

Appl
.

Protests

1985

Branch 2

1986

Charter6

Time

Branch 2

Merger .3
u uw

1987

? rte3r
Cha
Branch 5
Merger

1988

Charte3r
Branch

Merger

Ave.
Processing
Time

Processing
Target

Cond
.

W/D

Approved

72
days

45
days

2

287
days
94
days
76
days

120
days
45
days
45
days

4
2
1

339
days
158
days
113
days

120
days
45
days
45
days

5

718
days
268
days
218
days

120
days
45
days
45
days

1
4
1

2

2
1

2
5

2

3

80

- ll -

Notes

Times
Processing

with
a.of
A
pplications
authority
delegated
under
application
processing
an
district
for
time
Target
Washington
in
decided
be
authority
,bcannot
must
ut
delegated
under
district
the
by
decided
protest
substantive
Washington
for
time
procesing
TEconomic
target
he
.Corporate
Programs
Comptroller
and
Deputy
Senior
the
by

1.

time
district
target
addition
the
to
wprocessing
in
is
,. hich
days
45
cases
those
of
Reinvestment
D.C.
the
protested
by
charters
Columbia
of
District
for
represent
applications
charter
The
charters
.these
with
issues
associated
legal
significant
to
related
primarily
were
decisions
Delays
in
Alliance
.

.
2

ecisions
-D
' otes
N

the
where
considerations
CRA
on
based
a
8OCC
pplications
approved
conditionally
1987
,t
he
d
uring
addition
In

.
3

not
was
.application
protested

considerations
CRA
on
based
28OCC
adenied
nd
approved
conditionally
he
,tInpplications
1988
uring
daddition
.
protested
not
were
applications
the
where

-13

12

Covered
CRA
by
Applications
Corporate
All

Decisions

of
Number
Actions

Conditionally
Denied

Approved

Withdrawn

1987

2,195

2,085

49

17

54

1988

2,483

2,321

69

19

74

Issues
CRA
Other

Regarding
Agencies
Supervisory
Financial
Federal
the
of
Statement
Act
Reinvestment
Community
the
of
Comptroller
Office
year
this
March
In
Federal
Home
Corporation
,t
Insurance
Deposit
Federal
Currency
he
adopted
CRA
Reserve
Board
athis
Federal
the
, nd
Bank
Loan
guidance
community
and
institutions
to
provide
Statement
Policy
in
arisen
have
that
issues
of
n
umber
ato
clarify
, nd
groups
CRA
.
the
enforcing

regulation
,institutions
instance
For
by
required
presently
are
public
available
for
update
,to
make
nd
areview
nnually
prepare
.CRA
offer
to
willing
are
they
products
loan
the
listing
Statement
significantly
to
institution
each
encourages
Statement
Policy
new
The
institution's
the
to
reflect
accurately
more
Statement
CRA
its
expand
,describing
CRA
to
approach
overall
and
marketing
for
strategies
credit
,advertising
development
product
new
and
assessment
needs
size
,r
esources
accomplishments
.T
plans
future
and
he
past
including
influence
detail
of
degree
the
will
institution
an
location
and
.the
Statement
CRA
expanded
in
included
scope
and
revised
to
is
Statement
Policy
purposes
main
the
of
One
to
process
application
corporate
from
away
emphasis
the
shift
and
service
mechanisms
outreach
for
ongoing
more
stronger
build
believe
We
expanded
.that
communities
the
their
to
institutions
by

focusing
abetter
is
Statement
CRA
by
that
doing
for
vehicle
the
management
attention
institution's
annd
,a
large
at
public
the
of
on
record
institution's
the
c
,a
basis
ontinuing
nd
areas
any
.
improvement
needing
community
encouraged
have
we
Statement
Policy
revised
the
In
expanded
aorganizations
as
Statements
CRA
the
of
advantage
take
to
their
,b
discussion
for
point
starting
the
to
concerns
ringing
appropriate
the
to
and
management
institution's
an
of
attention
adversarial
r
the
in
than
agency
, ather
arise
they
as
supervisory
protest
atmosphere
ac
of
time
the
.at
application
orporate

18

Year

Comments
Examination
Related
and
Ratings
CRA
of
Disclosure

communication
to
addition
In
the
in
encouraged
efforts
CRA
Dof
tisclosure
Statement
,"Policy
238
Circular
Banking
issued
occ
he
-rThe
CRA
"o
Decisions
Application
Corporate
,1
15
.June
989
elated
n
disclosure
for
procedures
revises
circular
application
corporate
of
raised
was
performance
CRA
where
decisions
aconcern
as
provides
and
the
and
banks
national
for
information
to
access
.easier
public
when
letter
decision
its
publish
will
occ
The
applications
corporate
conditionally
have
banks
national
from
been
on
denied
or
approved
the
.tohe
CRA
publication
related
T
that
believes
Office
grounds
of
-related
CRA
public
and
bank
broader
facilitate
will
letters
decision
by
taken
actions
on
information
access
to
respect
with
office
the
.its
The
decisions
will
responsibilities
provide
also
statutory
about
guidance
additional
with
banks
the
uses
how
Office
assessments
performance
CRA
bank
of
certain
deciding
when
applications
corporate

1APENDIX

-4
1

Schedules
Examination
CRA
of
Publication

ACTIVITIES
OCC
OTHER
RELATED
THE
TO
CRA
to
proposal
the
on
comments
our
for
asked
has
Subcommittee
The
schedule
examination
agency's
CRA
advance
,t
i. We
publish
nhe
greater
provide
to
is
proposal
this
of
purpose
the
that
assume
process
.in
input
examination
CRA
the
public
for
opportunity
We
ithe
acurrent
of
use
hncluding
believe
,t
procedures
hat
owever
group
community
with
file
,e
interviews
xaminers
comment
public
bank's
encouraged
the
by
as
Statements
use
CRA
expanded
of
,and
members
the
opportunities
the
for
Statement
,p
adequate
rovide
Policy
CRA
new
performance
both
CRA
bank
about
communicate
concerns
their
to
public
process
be
not
would
.This
agencies
supervisory
their
and
banks
to
examination
publication
CRA
the
hof
,b
owever
y
enhanced

application
corporate
and
examination
the
of
use
to
addition
In
Industry
and
Customer
its
p
through
t
, rimarily
occ
he
processes
through
provides
banks
to
encouragement
,also
Division
Affairs
activities
communications
and
educational
of
program
ongoing
an
and
customer
to
sensitivity
industry
increase
banking
help

to
:.These
designed
are
activities
needs
community
bank
raised
concerns
and
issues
assess
key
oIby
dentify

schedule
.

fluid
v
a
is
examinations
of
scheduling
,sThe
process
ubject
ery
W
priorities
or
issues
new
. hen
adjustment
and
change
constant
to
flexibility
examiners
assign
to
,bank
arise
the
have
must
supervisors
place
would
schedule
examination
an
of
Publication
.
them
address
to
needed
this
restricting
of
position
untenable
in
office
the

o

flexibility
.

credit
needs
community
the
meet

acomprehensive
developed
has
occ
The
national
encourage
to
program
communities
.the
meet
help
to
banks
local
their
of
needs
credit
We
aprogram
developed
have
we
believe
balance
right
the
strikes
that
.between
resources
supervisory
our
for
demands
competing
We
the
use
that
comply
banks
national
-site
on
sure
make
to
programs
examination

82

corporations
and
community
development
bank
of
use
Promote
banks
one
help
to
tool
investments
development
as
community

o

Conclusion
and
Summary

Activities
Outreach
coordinates
OCC
also
tthe
,As
process
encouragement
ofhe
part
community
and
consumer
with
outreach
increase
to
activities
the
feedback
offer
issues
and
r
onitor
-groups
CRA
mto
, elated
related
ncluding
those
i
,on
trends
and
issues
industry
banking
key
identify
occ
the
help
activities
These
issues
.to
CRA

banks
We
national
assess
to
examiners
our
train
.with
law
the
accomplishments
.compliance
and
efforts
We
our
of
results
the
consider

requiring
are
and
applications
corporate
evaluating
in
assessments
We
performance
CRA
their
strengthen
to
banks
national
.maintain
that
all
ensure
community
with
contacts
help
to
groups
banking
and
other
.parties
each
of
resources
and
needs
the
understand

.
performance
bank
and
enforcement
CRA
concerning
CC's
,O
1984
in
Formalized
outreach
program
monitoring
and
ncludes
:,i
Division
Affairs
Industry
and
Customer
the
through
ased
(1)regular
-b
nationally
with
contact
groups
customer
bank
,(3)on
issues
key
focused
briefings
and
meetings
2special
alert
to
information
other
and
of
publications
development
nd
(4),a
responsiveness
their
encourage
and
issues
to
banks
anking
,assistance
borganizations
groups
customer
to
own
their
develop
other
and
to
groups
officials
government
ommunity
c
,programs
housing
in
participation
bana
on
focusing

We
of
needs
credit
the
meet
help
banks
national
most
that
believe
their
of
course
ordinary
the
in
communities
local
. The
business
doing
applications
many
deny
to
necessary
it
found
not
has
OCC
CRA
on
far
the
when
only
used
are
They
Dast
l
a
are
enials
.resort
grounds
has
approval
conditional
of
tactic
effective
imore
,little
chance
any
f
performance
.
bank
improving
of

.
finance
development
economic
and
established
Offices
District
six
Occ's
,the
addition
In
,
groups
community
and
consumer
contacting
for
programs
outreach
.an
bankers

-2

-3

have
activities
Major
:outreach
included

policies
implement
and
develop
closings
branch
for
to
adverse
minimize
the
on
effects
community
bank's
;

Bwasic
206
Circular
,"Banking
Services
hich
to
banks
national
encouraged
banking
basic
provide
low,i
customers
their
to
services
and
ncluding

-income
,ymoderate
retired
and
oung
may
who
persons
be
banking
conventional
for
charges
regular
pay
to
unable

o

O

83

Banking
Circular
189
B
Closings
," ranch
Reductions
and
,"which
Service
in
national
each
encouraged
to
bank

,the
year
Each
organizations
customer
many
assists
OCC
feature
which
publications
and
conferences
develop
to
bank
obligations
on
sessions
CRA
participation
bank
and
community
financing
assistance
Such
programs
.in
informational
,provision
includes
and
speakers
Occ
of
materials
,speakers
advice
aand
nd
programs
bank
on

}

could
which
Afeatured
.bemong
organizations
the

-5

and
1987
in
assisted
1988
National
the
were
for
Council

Development
Economic
Urban
League
,the
National
of

was
proceedings
roundtable
the
on
based
to
sent
all
.
banks
national

Cities
,t
Board
Policies
Growth
Southern
Black
he

National
Investment
Business
,t
Florida
of
Board
he
Alternatives
Policy
for
Center
Peoples
,N
ational

,
Housing
Affordable
in
Banks
for
Issues
and
Opportunities
. oundtable
1986
December
sponsored
In
OCC
the
by
ar
was
to
(1)h
the
were
Roundtable
ofeighten
purposes
The
investment
regarding
for
opportunities
bankers
of
awareness
(2)to
and
programs
housing
affordable
in
several
highlight
through
or
banks
by
offered
programs
financing
effective
roundtable
banks
.T
participate
he
partnerships
which
in
,the
participants
100
than
more
attracted
of
majority
great
innovative
addressed
panels
Three
.
bankers
were
whom
other
sector
private
,public
bankers
for
approaches
and
and
love
for
housing
provide
together
work
to
leaders
summarizing
imoderate
ncome
pthe
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.- ublication
and
banks
national
2,000
to
about
sent
was
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the
for
requests
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1,000
almost
have
publication

ACORN
Action
.,a
America
of
Federation
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the
nd

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and
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ecc
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n
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umber
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elated
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of
information
national
to
provide
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in
used
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peach
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banks
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these

.
date
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included
have
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meetings
:Responding
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Retail
of
Shape
The_Changing
to
by
Customer
amajor
was
Needs
sponsored
conference
national
including
attended
people
220
Over
.
1985
June
in
OCC
the
business
and
leaders
small
and
onsumer
bankers
,c
ommunity
association
trade
representatives
.bank
The
the
of
goal
and
change
adapt
participants
help
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meeting
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bank
of
role
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the
understand
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Bank
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o

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,h
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his
eld

08

1
15
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rought
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bankers
ank
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bank
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needs
credit
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Comptroller
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nd
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year

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ools
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and
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needs
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income
lower
business
minority
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development
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and
banks
national
all
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sent
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publication
. 989
1989
March
in
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additional
As
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July
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requests
to
from
banks
others
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o

Financing
of
Bank
Business
Development
Community
.This

aeffective
hddressed
,roundtable
1988
June
in
eld
businesses
small
serving
for
strategies
,p
those
articularly
operated
minorities
owned
by
those
women
and
located
economically
in
areas
.distressed
roundtable
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together
brought
small
and
bankers
groups
business
to
financing
key
discuss
faced
issues
businesses
small
by
and
can
banks
them
address
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banks
.
national
1,500

.This
Markets
Secondary
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and
Lending
Business
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ofosponsored
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roundtable
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1984
long
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-term
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new
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-term
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erm

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-6
-7

Corporation
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information
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community
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Development
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community
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usiness
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community
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bank
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65
1,1ver
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130
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investors
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of
number

nonprofit
development
groups
.

85

1987
March
in
initially
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package
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OCC
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extensively
used
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respond
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rowing
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ederal
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-income
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institutions
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following
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13

community
corporations
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ogether
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ank
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TBanking
Circular
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issued
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185
*C1984
"i
Corporations
.Development
185
ommunity
n
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describes
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ommunity
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nd
ith
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information
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and
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governing
nd
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of
part
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investments
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consider
to
banks
encourage
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overall
.their
needs
credit
community
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specific
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.
CDCS
current

TWELVE ASSESSMENT FACTORS

86

CIMINATION PROCEDURES

COMUNITI REINVESTMENT ACT

Bank aotivities that ascertain the

Neview minutes of boord of alructor .

1)

Obtain Information from a role of bank
records and Interview with bank stall .
( Studles / customers / neighborhood groupol
local government )

The atont of the bank's marketing
and special credit - rolated progrmo
to make community members aware of
credit services available .

credit needs of Ito local community .

The extent of participation by the

XADN2EPI

Nerlew other tale landing andnotion

Obtain information from the field of
dlotrict oftico or from the bank's rooordo .
Review any public comments .

performed .

Neule- pelor reports of amendmation and
other onenination progre currently belong

placed on gocoding .

.

management. Additional rollando -

and working papers of other proget .
Neview bonk ( lio and Laterrimu bent

programos ( soon and role Noveling hot ) .
( Bonk otott ewerences of Qupercorroning)
Initially rely on Glocuoclon with others
eneminors, role of entaination reporte

Aong practice. Intended to dlocourage

closing olticos and providing
services et ofticos .

Roulew written lending policy and procedure
manualo . Interview landing officers.
( HUD'S community development block grant
program / local neighborhood provormation
efforts /CDCo /neighborhood hoveing norrlonel

( Continued )

Bank participation in local
community development and
redevelopment projects or programe .

fltl I

( www

novleu benk financial statements , MDN
disclosuros , londing policy and procedero

Interview bank statt .

Dank porticipation in governmentally
Inoured , guaranteed , or subsidised

THA mortgage louno / SaA loano /
home improvement loano )

manuelo .

manuala ,

Review bank financial statements , mon
disclosures , lending policy and procedere

loan program for housing , mall
businesses or wall fome .

Review examination workpopers and
reporto . Consider safety and soundness .
( Small banks moy lack resources )

existing residents in neighborhoods
undergoing reinvestment and change .

bank's policies promote efforts to assist

of state and municipal bondo , secondary
mortgage market securities or whothor the

Consider factors such as bonk purcharco

Interslo bank statt .

The bank's ability to most community

community .

ito community , or the purchase of
much loans originated within ito

buolnos . Or mall fan loons within

housing rohabilitation loons ,
home Laprovement loons , and moll

rooidontial mortgage loano ,

The bank's origination of

TWELVE ASSESSMENT FACTORS

COMUNITT REINVESTMENT MCT

The bank ' , record of opening and

boidence of alecriminatory or
other illegal credit practice .

com.lating cu policies and
In the bank ' , au performance .

advertising / convenient hours / brochures )

( RE brokera /utg counselling programa

2)

bank'o board of directoro in

Revlon bank ' , marketing progra .

3)

meetings and any other bank
documontation ullablo . ( lank stall
awareness of au )

4

71

10 )

11)

12 )

Other factors that bear upon tho
extent to which • national bonk
is helping to most the credit noods

of its entiro community .

ΑΡΕΝD1X
CATEGORIES
PERFORMANCE
UNIFORM
INTERAGENCY
CRUI
SYSTY
RATING

1,2(Assessment
Tactors
Marketing
and
Needs
Credit
Community

I.
)
&3

System
Rating
Composite

credit
the
determining
in
activities
its
on
evaluated
is
Bank
.
services
marketing
and
community
its
of
needs

numeric
.IanThe
rating
assigned
individually
are
categories
performance
,the
rating
CRA
composite
overall
the
Assigning
categories
performance
neets
institution
the
well
how
to
according
evaluated
be
will
.
characteristics
descriptive
following

9€(Assessment
factors
Extended
and
offorod
Credit
of
Types

.II

)10

(1)
Rating

amounts
extended
credit
of
Bank
and
types
the
on
evaluated
is

strong
a
have
group
this
in
institutions
The
community
meeting
record
of
Bcredit
active
an
take
management
and
directors
of
board
the
. oth
needs
the
to
commitment
affirmative
an
demonstrate
and
process
in
part
in
high
rank
all
normally
Icommunity
rating
this
receiving
. nstitutions
. ommendable
categories
and
record
c
uch
aSperformance
have
institutions

meet
to
helping
are
extensions
those
which
degree
the
and
needs
.the
community's

no
need
further
encouragement
.

factors
4,567)(AGeographic
Distribution
ssessment

III
.

(2)
Rating

bank's
any
and
loans
distribution
the
of
geographic
The
,a
s
applications
considered
are
discourage
to
meant
practices
offices
any
of
closing
or
opening
of
impact
the
as
well

atisfactory
record
as
have
group
this
in
Institutions
meet
to
helping
of
I
receiving
. nstitutions
needs
rating
this
normally
credit
are
community
.Such
categories
performance
of
levels
the
in
ranked
satisfactory
credit
community
meet
help
to
encouragement
some
require
may
institutions

facilities
those
at
offered
services
the
.and

87

.
needs

(Assessment
Practices
Credit
Illegal
Other
or
Discrimination

.
IV

3)(
Rating

Factor
)
6

group
this
in
Institutions
ess
al
have
than
satisfactory
helping
of
record

and
-d
other
iscrimination
anti
with
compliance
bank's
The
be
must
rating
This
as
same
the
.
evaluated
are
laws
credit

he
T
board
directors
.and
needs
credit
community
meet
to
of
management

.have
community
of
needs
credit
the
on
emphasis
strong
placed
not
rankings
mixed
have
rating
this
receiving
Institutions
surrounding
the
uch
-range
mid
.S
categories
performance
the
of
levels
require
institutions

compliance
overall
.the
rating

.credit
needs
community
meet
help
to
encouragement
(4)
Rating

ACommunity
8,1)& 12ssessment
(Factors
Development

V.

group
this
in
Institutions
have
of
record
unsatisfactory
an
helping
to
he
T
board
of
directors
and
management
.meet
needs
credit
give
community
the
of
needs
credit
the
to
consideration
inadequate
community
.
rating
this
receiving
Institutions
generally
in
satisfactory
below
rank
uch
.institutions
categories
performance
of
majority
Sthe
require
.to
needs
credit
community
meet
help
encouragement
strong

(5)
Rating
ubstantially
this
in
Institutions
group
s
ainadequate
have
of
record
.helping
needs
credit
community
he
T
of
board
directors
meet
to
and
of
needs
credit
the
to
consideration
little
give
appear
management
I
receiving
rating
this
. nstitutions
community
rank
generally
in
the
categories
performance
the
of
levels
lowest
.Such
require
institutions
.credit
needs
community
meet
help
to
encouragement
strongest
the

evaluated
is
bank
The
participation
its
for
community
in

credit
local
meeting
to
/or
and
development
relating
factors
needs
.

88

Senator Dixon. Thank you , Mr. McDowell.
Ms. Smith.

STATEMENT OF JANICE M. SMITH, DIRECTOR OF OFFICE OF CON.

COMPLIANCE EXAMINATION DETAILS

Compliance examination details are also required of all commis
sioned and assistant examiners as part of their career progression.

FDIC examiners evaluate the compliance with the CRA on the
basis of a bank's attempt to ascertain determination to help meet

and performance in helping to meet community credit needs in the
context of the bank's resources and local circumstances.

89

The FDIC rates banks in accordance with a uniform interagency

CRA assessment rating system . About 98 percent of all FDIC -super
vised banks examined for CRA compliance have been assigned sat
isfactory ratings.

a

90

TheFDIC has received 19 CRA -related application protests since
1984. During the past 5 years, no applications have been denied
based on CRA factors, one has been conditionally approved, 14
have been approved without conditions, and two were withdrawn.

FDIC
SUMMARY
OF
TESTIMONY

9,000
about
examines
regularly
FDIC
The
-chartered
State
banks
normember
applicable
with
compliance
protection
consumer
,ifor
laws
the
ncluding
examine
to
is
goal
rated
compliance
1,2oOur
3fbanks
r
least
at
.or
CRA
4and
and
12
every
least
at
banks
ated
,w5r24
months
ith
visitations
conducted
necessary
conducted
.Wase
compliance
1,228

OF
TESTIMONY

Janice
M.
Smith

examinations
1986
,a2,242
1987
nd
1988
in
.3,066
conducted
are
examinations
Compliance
received
have
who
examiners
by
both
tob
on
and
.E-jformal
training
he
Offices
Regional
eight
our
of
ach
have
dedicated
to
consumer
the
compliance
area
CAonsumer
.staff
Coordinator
been
has
each
to
assigned
offices
field
94
our
of
and
assistant
and
commissioned
all
of
required
are
details
compliance

INSURANCE
DEPOSIT
FEDERAL
CORPORATION
examiners
.

acbasis
on
banks
evaluates
FDIC
The
examination
CRA
using
by
case
ase
hese
developed
were
procedures
.Twhich
basis
interagency
an
on
FDIC'S
the
of
345
Part
in
outlined
are
which
factors
assessment
include
ON

Regulations
Rules
.and
banks
rates
FDIC
The
accordance
in
Uniform
Interagency
the
with
CRA
.AAssessment
%oSystem
-s98
FDIC
all
examined
banks
Rating
fupervised
bout
better
ort
satisfactory
assigned
been
have
compliance
CRA
.Ifor
ratings
assessment
Cank's
that
emphasized
be
should
an
is
RA
abrating
of
.While
time
over
record
performance
noncompliance
of
instances
individual

16

REINVESTMENT
COMMUNITY
THE
ACT

,r
account
into
taken
are
m
areflects
of
view
comprehensive
ating
ore
bank's
performance
.
BEFORE
THE

performance
ratings
examination
uses
FDIC
abThe
summarize
.Ito
tank's
judgment
asThe
is
ubjective
supervisory
for
.used
purposes
FDIC
does
provide
to
reports
examination
of
section
open
the
and
ratings
its
.Fovered
supervision
its
under
-cinstitutions
CRA
filing
banks
or
,asCRA
FDIC
the
with
applications
of
assessment
is
performance
ummary
and
bank
apublic
in
included
prepared
applicant
the
at
file

AFFAIRS
REGULATORY
AND
CONSUMER
ON
SUBCOMMITTEE
HOUSING
BANKING
ON
,COMMITTEE
URBAN
A
AFFAIRS
ND

.
Office
Regional
FDIC
appropriate
CRA
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2
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5
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7
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6
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nd
without
between
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application
the
delaying
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encourage
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hen
ur
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iscuss

needs
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of
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credit
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,its
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othe
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r
needs
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meet
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.Among
persons
community
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contacted
to
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government
local
be
or
information
useful
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to
expected
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in
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types
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concerning

addressed
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CRA
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are
elated
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accompanying
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approve
to
order
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.Tthe
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are
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review
for
public
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to
application
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here
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protested
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protestants
aletter
sends
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.to
taken
action
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explaining

.
participation
bank's
of
extent
the
and
community

.interest
newsletters
organization
In
,F
addition
efforts
outreach
DIC's

and
community
by
sponsored
seminars
or
conferences
at
representation
include
/ohere
and
r
attendees
write
to
encouraged
are
,wcall
groups
industry
the
,tDproblem
1988
of
Office
FDIC's
he
apuring
is
there
.whenever
erceived
approximately
reported
Offices
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our
and
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,4Consumer
39
00

.
addressed

number
,only
331
calls
telephone
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of
assistance
and
information
for

Application
5.
Decisions

Regional
.Offices
matters
reinvestment
comminity
involved
the
and
,OInCA
1988
inquiries
,o3,600
which
of
twenty
nly
nearly
processed
and
complaints
written
prior
with
The
consistent
is
figure
latter
-related
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.involved
issues

ritical
bank
enforcing
and
Monitoring
the
acwith
is
mandate
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compliance
component
deposit
for
applications
bank
of
evaluation
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the
in
on
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making
,tIn
applications
due
gives
FDIC
such
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facilities
performance
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to
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,nconsideration
cases
all
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record
just
ot

.
years

covered
CRA
about
learn
may
parties
groups
Community
interested
other
and
newspapers
local
in
published
notices
through
FDIC
the
with
filed
applications
.Interested
public
banking
of
convenience
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for
learn
also
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parties
(s)of
area
geographic
for
applications
such
about
placing
by
interest
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notification
Office
for
lists
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on
names
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by
Associate
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Director
the
protest
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.A
filed
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ction

requirements
where
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Bank
Division
FDIC's
the
of
Director
resolved
favorably
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to
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ating
r
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all
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T
FDIC
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he

,for
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days
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30
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nd
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granted
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to
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of
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not
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ameans
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offered
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made
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owever
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of
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aseriously
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comment
on
to
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encourages
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comment
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allows
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timely
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specified
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his
periods
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process
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responsibility
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to
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be
the
can
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consistent
limits
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interest
public
delays
rocessing
.costly
community
the
and
service
delay
banks
to

.
performance

95

important
is
it
that
believe
We
regular
have
to
representatives
with
dialogue
both
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industry
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groups
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ur
periodic
include
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meetings
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have
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n
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elated

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or
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of
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oomplaint
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ith
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r
aof
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oll
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nationally

9
-

8
-

designed
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take
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of
approval
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granted
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only
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renforcement
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elated
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of
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made
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ank's
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encouraged
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.
conditions
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6

and
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vidence
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interested
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be
considered
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adhered
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agreement
has

Protests
CRA

application
-rin
CRA
no
received
FDIC
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1985
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1984
protests
wo
(atwo
tgainst
two
),n1986
banks
1987
in
ine
wo
bank
five
one
fgainst
seven
1988
),in
(abanks
ive
nd
denied
been
have
years
applications
,npast
the
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five
in
far
thus
.o
1989
been
o4ne
factors
CRA
on
,1based
approved
conditionally
has
have

credit
.
needs
meeting
local
in
record
assessing
its
Reports
Examination
and
Ratings
CRA
of
Disclosure
Public

.
8

examination
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reports
e
disclosure
ratings
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and
public
the
to
regard
In

w
received
e
were
,a
conditions
without
approved
.two
withdrawn
addition
Ind
n

eight
1986
inquiries
complaints
written
,tsix
1987
in
and
1988
wenty
patterns
no
revealed
complaint
CRA
each
of
Investigations
1989
in
far
so
.five
.Also
discrimination
of
practices
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CRA
few
very
found
have
examiners
DIC

:
could
release
the
believe

institution
and
between
afDeter
inancial
discussions
frank
open

.comment
files
public
bank
in
letters

regulator
its
;

,the
inception
Act's
the
Since
deposit
for
applications
three
denied
has
FDIC
facilities
CRA
to
,factors
grounds
CRA
on
denials
application
of
rate
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.due
be
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however
not
enforcement
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the
assessing
in
weight
undue
given

problems
compliance
have
which
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on
effect
adverse
an
Have
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acorrect
nd
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them
trying
are
but
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ratings
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and
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use

-rof
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at
banks
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of
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on
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rior
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pplications

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groups
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istatement
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performance
nummary
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the
to
submitted
applications
for
file
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of
part
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assessments

96

.
likely
is
denial
that
clear
becomes
it
when
applicants
by
withdrawn
sometimes

-covered
CRA
nonprotested
on
actions
reflects
table
following
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applicatons
through
:
1989
of
half
first
1984
years
the
for

and
upon
public
the
to
provided
are
.
request
half
1st
1984

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1985

1986

1987

1989

1,402

1,515

1,750

1,801

summarize
bank's
a
.T
performance
he
to
ratings
examination
uses
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asjudgment
reflect
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purposes
supervisory
for
used
are
and
ubjective
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ratings
performance
.The
,Fonly
FDIC
aggregate
release
do
OCC
the
and
RB

839

Council
Examination
Institutions
Federal
Financial
through
the
public
to
of
section
ratings
open
the
and
also
provides
its
(F
).T
FDIC
FIEC
he

supervision
.
its
under
institutions
to
reports
examination
from
ranges
applications
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to
takes
it
time
of
length
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an
ratings
examination
and
disclosure
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of
public
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to
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comments
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and
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in
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ummary
regulators
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include
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deposit
for
days
111
branches
to
relocations
and
30
of
average

,t40
applications
protested
For
from
ranges
average
for
days
insurance
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applicatiors
merger
for
days
198
to
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.
7

available
made
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the
public
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upon
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with
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for
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and
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ultimately
pplication
nd
ase
memoranda
administrative
normally
is
action
stringent
more
Progressively
.
order
desist

Notice
9.
Examinations
CRA
of

.taken
achieved
is
compliance
until

.Eof
practical
examinations
be
would
public
notice
CRA
do
Weven
believe
not
Ponly
near
ublication
.aftakes
days
ew
usually
thorough
review
CRA
most
the
reach
public
to
comments
may
not
for
allow
examination
commences
date
the
very
valid
times
for
when
tFmanner
are
here
examiner
,.the
aurther
in
imely

Examples
process
application
the
outside
taken
actions
supervisory
FDIC
of
(Aagainst
attached
are
CRA
the
with
compliance
in
not
institutions
ttachment
and
as3.Tection
understanding
of
memoranda
8(b)Cinclude
hese
ease

minute
.the
last
Anotice
at
rescheduled
be
must
examination
reasons
,an

regulators
in
problems
for
and
public
the
confusion
cause
requirement
could

.
Order
Desist
instances
.these

10
-

The
regulatory
agencies
have
complaint
and
CRA
protest
procedures
in
which
indicate
whereplace
and
whom
to
consumers
may
write
conment
to
on
an
institutio
CRA
Ijerformanc
. nteresteden's
parties
are
encouraged
submit
to
conments
related
to
CRA
to
regulatory
the
agencies
and
financial
institutio
ns
ongoing
an
on
basis
and
only
not
when
examinatio
an
n
about
is
oocur
,wto
hich
may
once
be
every
regulation
Otwo
.years
ur
require
se
maintenanc
the
aof
public
file
of
comments
on
breviewed
ais
ank's
performanc
CRA
e
, nd
this
file
examiners
during
the
course
Cof
abyublication
RA
nt
pexaminatio
.A
requiremen
could
discourage
acomments
,interim
nd
thus
pcounter
roductive
.-be
Conclusion

The
FDIC
aware
is
the
importance
of
CRA
encouragin
in
banks
g
more
to
comprehens
ively
meet
the
credit
of
their
commnitie
and
s
particular
n
,ineeds
the
credit
needs
low
offfective
and
moderate
neighborho
ods
E.income
enforcemen
by
t
the
FDIC
both
essential
and
beneficial
I
.is
t
should
be
recognized
haccomplish
owever
,in
tbe
hat
implementa
tion
the
of
CRA
must
ed
ways
that

assure
safety
the
soundness
and
financial
of
.institutio
ns

respond
any
questions
.to

97

Attachments

Thank
you
Mr.
Chairman
and
members
of
fSubcommitt
,the
ee
or
giving
the
FDIC
an
opportunit
express
toe
y
views
our
these
issues
W.on
will
be
pleased
to

-D
II

-D
II
1
Attachment
Section

Socton

PROCEDURES
AND
POLICIES
EXAMINATION
CRA

REINVESTMENT
COMMUNITY

or
the
can
Ncommunities
.or
community
local
its
of
on
performance
ank's
abexaminer
assess
adequately
ata
d,source
or
information
one
any
of
basis
the
procedures
examination
,tthat
reason
or
.Fhe
opinion
the
both
from
information
that
ensure
to
designed
are
and
reviewed
objectively
is
community
.
needs
the
bank

com
local
each
within
to
extend
prepared
is
bank
the
he
.notice
regula
TCRA
the
of
cmunity
(3)a, opy
nd
state
its
in
include
to
bank
each
encourages
also
tion
help
to
ascertain
its
of
efforts
dand
aescription
ment

INTRODUCTION
.
needs
credit
community
meet

2RA
1)(C
U.S.C.
Act
Reinvestment
Community
The

t,aC
notice
RA
office
each
in
provide
must
ank
bhe
A
.in
regulation
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prescribed
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statement
CRA
the
that
indicates
notice
public
The

help
to
banks
encourage
i2901
intended
.) s
seq
et
,their
communities
entire
of
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moet
,-iand
neighborhoods
ncome
moderate
lowincluding
in
operate
to
necessary
flexibility
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preserving
while

the
statement
on
comments
tavailable
written
,ishat

.
evaluated

the
Corporation
by
provided
be
to
is
Encouragement
is
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required
:
to
bauthority
aits
encourage
to
se
•Uank
examination

and
Development
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C
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ncome
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trecord
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In
com
effective
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placed
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development
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munication
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is
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,tWith
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respect
and
afe
asbe
on
met
can
which
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community
com
the
when
met
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to
likely
more
are
basis
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munity
types
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of
aware
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community
about
informed
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ence
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community
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and
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cluding
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advertise
-ito
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encouraged
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determining
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of
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munity

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tor
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be
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covered
ettect
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and

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s
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manner

of
intent
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sight
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The
with
for
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technical
checking
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statute
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designed
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regulation
the
entire
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the
extent
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determine
primarily
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and
helped
has

op
each
give
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examination
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the
bank
bto
having
aenefi
itis
that
demonstrate
portunity
community
.
communities
or
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its
on
influence
cial
credit
community
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to
helping
are
that
Bankers
of
substan
fact
be
will
and
proud
that
are
needs
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in
examiner
to
assistance
tial
per
the
.
of
banks
their
formance

.
years
two
past
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ist
of
lsets
aforth
regulation
CRA
The
each
assessing
in
consider
will
Corporation
the
which
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ncome
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imoderate
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to
required
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is
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list
on
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ticular
in
flexibility
considerable
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it
how
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of
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in
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convenient
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103

A
Appendix

1)Rating
( 2-86
Systorns
A
Appendix

2

(12-5
Systems
)Rating

A

A
Appendix

Appendix

RATING
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)(12-16
Systems
Rating
A
Appendix

104

RATING SYSTEM CHART

:
follows
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.compliance
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A
Appendix

evidence
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А
А
Appendix

UNIFORM
INTERAGENCY

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COMMUNITY
REINVESTMENT
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ASSESSMENT
RATING
SYSTEM

types
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Introduction
purpose
The
of
system
rating
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to
uprovide
ais
niform
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regulatory
for
agencies
identity
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quickly
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institutions
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omprehensive
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Appendix

estate
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A
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reach
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A

A
Appendix

knowledge
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Appendix

3–The
Level
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the
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other
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106

Level
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of
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TRating
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113

Senator Dixon. Thank you very much, Ms. Smith.
LACK OF UNIFORMITY BETWEEN AGENCIES

One of the first things I would like to observe is that one of the

complaints that we continuously receive in the committee is that
there is aa lack of uniformity to the method with which each of your
four separate regulatory agencies does its job. I can't say that I get
that sense as I hear your testimony. It doesn't sound allthat differ
ent, the different things that you do.

114

Ms. SMITH . Not much to add, but I believe that the task force has

made an effort to come out with more uniform procedures, not just
on CRA but all the consumer protection laws. We do have an ex
amination procedure subcommittee, which we made a permanent
subcommittee in recent months.

TRAINING PROGRAM

Ms. SMITH . I would say there is an effort to do this. I know in our
case we are looking at developing more training, and part of that is

more advanced training. We are actually taking a look at some of

115

|

loans, to see whether the pattern was appropriate or whether there
was gerrymandering going on.

116

lishes four different ratings to be publicly disclosed: the first being
an outstanding record of meeting community credit needs, the
second being a satisfactory record, the third being a record that

needs improvement, and the fourth being substantial noncompli
ance with community credit goals.

REPORT LANGUAGE

I would say with regard to that provision there is one area where
we have some remaining concerns, and perhaps, Senator Dixon,
you would have some influence along the way with the report lan
guage. We are anxious to have it made clear that we have the abil

ity to speak confidentially to the institution in the areas that in
volve the privacy of their customers and individual employees, the
institution's own financial condition, and other sensitive matters

that we would want to bring to their attention to encourage good
behavior. At the same time, we want to make full and fair disclo
sure of our overall assessment to the public.

117

Mr. McDOWELL. I believe the adjective rating system that is
being proposed is probably better for the local communities than
giving them numbers. I think it will be more meaningful, as Mr.
Kluckman said . It will be an improvement.

118

So again it seems to me it shouldn't be surprising that you have
pretty high numbers.

ATLANTA INVESTIGATION

They do not answer the question of whether racial discrimina
tion is occurring, however. There are lots of things at work; for ex
ample, the turnover of housing stock . In the Atlanta study the
turnover of housing was about twice as great in the nonminority
areas as in the minority areas. The value of the housing stock was
about 25 percent less in the minority areas than it was in the non

minority. There were different preferences for FHA and VA loans,
and those are offered more commonly by mortgage bankers than

financial institutions that were active in the minority areas. And
there were a variety of other factors. The banks may not have had
the aggressive outreach that we would have wanted in those minor
ity areas.

119

It is a complex set of factors that certainly merit concern, and
the Department of Justice, for example, is now conducting an ex
tensive investigation of the Atlanta situation .

JUDGMENT AND RECOMMENDATIONS

Senator Dixon . Who makes that judgment?
Ms. SMITH . The examiner .

you have ?
Ms. SMITH. We have about 2,000 examiners right now.

Senator Dixon . How many do you have, Mr. McDowell?
Mr. McDoWELL . About 2,500.

Senator Dixon. How many do you have, Mr. Kluckman?

120

Mr. GARWOOD . We have about 100 who devote themselves exclu

sively to consumer compliance matters.

121

What happens then? What do you do? Do you do anything?

122

Mr. KLUCKMAN. I believe if the examiner during an examination
found in the comment file a letter from a particular group com

menting upon the institution's CRA record, that the examiner

would in the normal course contact that group and determine what
the real concerns were. It would not be an appropriate examination
to fail to contact someone who raised real concerns.

123

Senator Dixon. Do any of you have anything further you would
like to observe in connection with this before I conclude this hear
ing this afternoon ?

-

124

Questions for the record for the Federal Reserve Board from Senator Dixon
from the July 31, 1989 hearing
Questions and Answers

1. How specifically is an institution to ascertain the credit
needs of low- and moderate - income neighborhoods ? How
specifically will an examiner determine whether an institution
has fulfilled this obligation ?

Institutions may ascertain the credit needs of their

communities in a variety of ways , such as through regular contact
with customers , meetings with community groups , marketing surveys
or studies , Board of Director memberships or directorships in
economic development or other organizations , and discussions with
elected officials and government agencies . Some of these are
described in the Joint Policy Statement on CRA issued by the
federal financial regulatory agencies in March . How examiners

determine the extent to which institutions have ascertained local
credit needs is addressed on pages II.1.48 and 49 of the uniform
interagency examination procedures for CRA , a copy of which is
attached .

Would marketing only to high income areas and not to
moderate - income areas be non -compliance with the CRA ? What
sort of marketing is required ?
No specific type of marketing is required by the statute or

the regulation , but institutions are generally expected to make
their credit services available in a non-discriminatory manner ,
throughout their delineated community . The kinds of marketing
and outreach which we take particular note of in evaluating CRA
performance are described on pages 5 and 6 of my testimony .
In our view the CRA does not prohibit an institution from
offering certain products geared to high income clientele , or
from directing its marketing of those products to that audienceas long as the totality of its services help to meet the credit
needs of its entire community , including low- and moderate - income
areas .
There may be situations , however , in which a bank's
delineated community has no low- and moderate - income areas , for

example , a small bank located in the suburbs .

Assuming that the

bank's community delineation does not unreasonably exclude any

such areas , the bank would be doing what is expected by CRA by
serving its own community . The examiner would not be precluded
from assigning a satisfactory rating even if there was no
marketing to low- or moderate - income areas ( assuming there were
none within the designated community . )
The statute directs us to

assess a state member bank's record of " meeting the credit needs
of its entire community , including low- and moderate- income
neighborhoods , consistent with the safe and sound operation of
such institution . "
If there are no low- and moderate - income

areas in the community and the bank is serving its entire
community , then it is doing what is expected . Obviously , care
must be taken in deciding that such a delineation is , in fact ,
reasonable .

125

2

The answer to your question is clearly more complex when
dealing with a bank with low- and moderate - income areas in its

immediate vicinity . Assuming that there are both low- and
moderate - income areas and more affluent areas in a bank's
delineated community , a satisfactory rating would not be given if
the bank is not taking steps to serve all parts of that
community .
It may choose to serve the various parts differently
by offering products that meet the different needs of the various
areas , if that is appropriate .
It might also , for example ,

specialize in serving a higher income clientele in its retail
strategy but conclude that it can best meet the needs of the low
and moderate - income areas by investing in local bonds , assisting

minority enterprises , participating in public / private
partnerships for commercial revitalization and low- and
moderate - income housing and the like . Furthermore , it may use
different forms of outreach and advertising to get its product

offerings before the various parts of its market in the way that
is most effective .

It is difficult to come to a single simple answer to is
question because all banks are different and they serve different
communities with different characteristics .

I want to be clear , however , that a state member bank that
unreasonably excludes low- and moderate - income areas from its
delineated community , or fails to help serve the needs of those

that are in its delineated community , is unlikely to get a
satisfactory rating from our examiners .

3.

How specifically do you analyze the geographic distribution
How exactly is the HMDA data used ? What would be an

of credit ?

acceptable geographic distribution ?
Provide several examples .

What would be unsatisfactory ?

Pages II.1.50 and 51 of the uniform interagency CRA

examination procedures describe how the geographic distribution
of credit is analyzed . These procedures are part of the larger
focus on detecting illegal credit discrimination which , in

addition to an analysis of where loans are actually made , also
includes a review of the bank's lending policies and practices to
see that they do not discourage loan applications, a review of
the distribution of applications and denials , and compliance with
consumer credit laws more generally .
In this context , examiners

compare key " profile "

information from both accepted and rejected

loan applicants , looking for any differences in the way the
institution's stated lending standards have been applied . Loans
may also be geocoded , or plotted on a map by census tract , which
readily indicates whether lending has failed to reach specific
areas .

HMDA data reported by institutions is compiled and matched
against census data .
It is then made available to regulators
( and to the public at central repositories within each MSA ) in
tables
the form of
which present breakdowns of lending by

22-155 O - 90 - 5

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3

individual institutions, and by aggrégate lenders within each
MSA , according to location , age of housing stock , income level
and racial characteristics .

There is no " acceptable " or " unacceptable " distribution of
loans that applies to all cases . This is particularly true given
the importance demand and competitive factors play in determining
where , and in what volume , loans are extended . However , for

purposes of analysis , we have found it helpful to compare the
percent of mortgage and/or home improvement loans made by a given
lender in low- and moderate - income neighborhoods , with the

percent of loans made in those neighborhoods by all reporting
lenders .
We have also found it helpful, when comparing lending
patterns in different census tracts, to calculate the number of
loans made per owner - occupied unit , given that disparities may
sometimes be due to a high incidence of rental housing .
Attached are redacted examples of the analysis performed of

HMDA lending patterns in several application cases in 1989 .
4.
How many applications have been approved without conditions
when the financial institution has had a less than satisfactory
rating ?

Between 1983 and 1988 , the Board approved about 70
applications where a CRA rating was less than satisfactory-- and

very few of these involved a CRA protest . To put this in
perspective , those 70 applications represent less than 1 percent
of the total number of bank holding company applications handled
by the Board during those years .

The Federal Reserve has seldom used conditional approvals in
applications raising CRA issues , although it does make use of
approvals with commitments .
In all these cases where an

institution party to the application has had a less than
satisfactory rating , the applicant must have already taken
corrective action to address any CRA deficiencies, or must have
made commitments to do so , before processing of the proposal is
completed .
In this respect , we operate like we do when
improvements have been needed in such matters as financial or
managerial weakness .

5.

The March Joint Statement by the Exam Council encourages a

dialogue between banks / thrifts and community groups through the
expanded CRA Statement and public comments thereon . Do you yet

know how many banks and thrifts are now writing expanded CRA
statements and how many are getting comments from community
groups ?

We do not have any statistical information in that regard at
We have talked informally with bankers , and
have been told by many that they are in the process of acting on
this point in time .

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4

the Statements guidance and recommendations . Our examiners
conduct CRA examinations in light of the Joint Policy Statement ,
noting the specific measures taken by a bank in response to the
Statement in their findings , as appropriate .

Describe how and when examiners contact community groups
How do examiners decide whom to contact ? In
what percent of exams are community groups interviewed ? What
6.

during an exam .

are

they asked ?

As a matter of long- standing policy , our examiners conduct
interviews with people outside of the bank during the course of
each CRA examination .
These contacts include consumer advocacy
groups , housing coalitions , local business and trade

associations , and government officials and other sources of
information about the communities ' credit needs . Since all of
these organizations are outside the bank they might all be

considered " community groups " in a broad sense . If so , such
contacts are made in one hundred percent of the examinations .
In some small rural communities there may be no organized
" community groups " of the more limited type one traditionally
thinks of in an urban setting . Consequently , if that is the
definition used , such contacts would be made in something less
than all of the examinations . We do not , however , have data that
would provide an exact percentage ; but , it is our policy in all
cases to encourage examiners to seek out the best community input

possible to help make an honest assessment of the bank's CRA
performance .
These contacts are selected by examiners in a number of
ways . Frequently examiners telephone local housing departments
or agencies to identify contacts, and to ask for referrals .
Community Affairs Officers at the Reserve Banks provide ideas to
examiners for contacts and conduct many such contacts themselves .
Reviewing the bank's CRA public file and previous CRA examination
reports can yield possible contacts .
If there has been recent
CRA - related dialogue or protest activity in or near the bank's

service area , those protestant organizations or individuals
involved may be contacted .
Points to be covered in the interview are the contact's

perceptions of how the community may grow and prosper ; what types
of credit would assist in the community's improvement , whether
they are currently available , and from whom ; how specific
financial institutions are involved in the community ; what areas
of the community are most in need of help ; whether there are

additional programs financial institutions could utilize to
further satisfy the community's credit and service needs ;

and

whether there is any indication that any protected classes ( which
are articulated in the Equal Credit Opportunity Act ) have
experienced discriminatory practices by financial institutions .

The form our examiners use for recording community contact
interviews is attached .

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5

7.
When the Federal Reserve Board reviews an application on CRA
grounds , its order on the application routinely includes a

discussion of the issues raised , the Board's assessment of the

bank's performance with respect to those issues , and how its
conclusions affected the final decision .
This type of discussion
has proved helpful - to lenders and community groups alike -- in
providing insight into the Board's interpretation of CRA . Are
-

the other regulatory agencies willing to follow this practice?
This question is not applicable to the Federal Reserve .
8.

Since there are no performance standards for measuring CRA

performance and assigning ratings , what assurance is there that

ratings are assigned consistently by different examiners , within
different regions of each agency , and across agencies ?

On the contrary , there are definite standards for measuring
CRA performance and assigning ratings . These are set out in the
twelve assessment factors contained in Regulation BB and in the

uniform interagency CRA ratings system , copies of which have
previously been provided to the Subcommittee and which are
attached hereto . As I indicated to you on page 7 of my
testimony , these standards are generally qualitative rather than
quantitative in nature , describing the type rather than the
specific amount of activities institutions should be engaged in

to merit ratings on a 1 to 5 scale .

They acknowledge that

financial condition and size of the bank , the urban or rural
character of its locale , the competitive environment and the
prevailing local economy will have a significant impact on how
CRA obligations are addressed .

To ensure consistency within the Federal Reserve System , we
review examination reports on a sample basis here in Washington

to ensure policy is adhered to in citing violations and assigning
ratings . With regard to the four regulatory agencies ,
substantively similar implementing regulations for the CRA have
been adopted , and a uniform rating system is followed .
At the same time , I would frankly say that assessing CRA
performance inherently involves a measure of subjectivity , as

well as the examiner's professional judgment and insight ; it
cannot be reduced to a mechanical , lockstep process . We do our
best to ensure uniformity through examiner training and review of

examination reports .

We also address general questions relating

to CRA examinations through the Federal Financial Institutions
Examination Council ; for example , the Council has issued a
" Question and Answer " document on CRA issues which have arisen ,
primarily as a result of field experience .
Do financial institutions derive any benefits for achieving
a top CRA rating ? Should they ? What specific recommendations
would you have ?
9.

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6

Institutions do derive benefits, in the sense that their
economic success is very much linked to the growth and prosperity

of their communities --which they can promote through their CRA
efforts . We believe institutions should comply with the CRA
because it is the law , and would not be in favor of any kind of
special rewards to those which fulfill their legal obligations .
Some of the proposals I have heard discussed in this regard-

such as paying interest on required reserves for high - rated
institutions --have severe problems .

Some banks claim that their CRA ratings have been downgraded
10 .
because of agency criticism of their documentation . This

apparently occurred even when the bank in question was performing
on CRA in a superlative manner . How much new emphasis is being
placed on CRA documentation as opposed to performance ? How do
you balance the two ?

The CRA Policy Statement affirms that the agencies expect
financial institutions to manage their CRA responsibilities like
they do other aspects of their business . One element of good
management , typically , is reasonable documentation .

intended to require documentation simply for the sake of
documentation , the Policy Statement does explain that such
documentation will be a key factor in the agencies ' ability to

analyze the issues in a CRA - protested application quickly and
thoroughly . We have also conveyed in the Policy Statement that
we are endeavoring to shift our focus to the examination as the
gauge of how well a bank is performing under the CRA , and away
from the highly pressured application process . Consequently , it

is very much in a bank's interest to keep good documentation of
its CRA activities to " answer " a CRA protest , to present during a
CRA examination and , just as importantly , to facilitate its own
self- evaluation of its own performance as a part of its effort to

manage this responsibility .
Nevertheless , while we have urged banking organizations to

document their efforts for these reasons , I would not say that we
have placed any " new emphasis " on documentation with respect to
the assignment of ratings .
In fact , I am not aware of any state
member bank whose CRA rating has been downgraded simply because
of poor documentation . A deterioration in the rating is apt to

be evidenced if the institution has done little to manage and
document its own performance , thereby indicating it has no
process in place for dealing with CRA . However , this certainly
would not be the case if the performance has nonetheless been
demonstrably satisfactory .

11 .

Do agency procedures require examiners to review existing

CRA agreements between lending institutions and community groups.
If so , describe the procedures . Do examiners routinely assess a
financial institution's implementation of such an agreement in
evaluating an institution's CRA performance ?

Do the procedures

require examiners to contact the community groups as part of this

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7

evaluation ?

It is the Board's policy to encourage banks and community
groups to talk with each other and , as much as possible , to
resolve their differences . However , it very firmly believes that
any agreements made by banks with community groups are private
matters which it does not enforce . Therefore , examination
procedures do not call for the examiner to make sure they have

been complied with .

In this respect , they are unlike commitments

made by banking organizations to the Board , which definitely are
subject to supervisory follow - up . This distinction is important
because many of these private agreements contain specific lending

targets or other provisions which could bring the Board into the
business of allocating credit or " favoring " one particular
community group over other equally worthy ones .
At the same time , I should point out that in many cases the

private agreements do result in special initiatives by a bank to
improve its community outreach , its lending , or other
credit - related services . Such initiatives may very well
strengthen bank performance in one or more of the CRA performance
categories and would , naturally , be reflected in the examiner's

assessment of the bank's record .

This record would not be

reviewed , therefore , in the context of enforcing the agreement

but , rather , of assuring that a complete and accurate assessment
of that record is reflected in the examination report and the
rating assigned .

As mentioned under question 6 , examiners may interview a
community group which has entered into a private agreement with
the bank being examined as one of their routine " community

contacts , "

although examination procedures do not require them to

contact that particular group .

Other organizations , businesses ,
agencies or individuals may have an equal or superior claim to
the examiner's attention in that community .

12 .
All of the agencies indicate that HMDA data is integral to
CRA evaluations and helps them to determine the degree to which

lenders are serving various parts of their communities with
respect to mortgage loans .
lending be equally useful ?

Would comparable data for commercial
If not , why not ?

No , I do not think so . First , unlike with HMDA , such data
would not be very reliable as a geographic indicator of the
impact of the credit extension . For example , a business loan may
not b
used in the same neighborhood , or even the same city ,
where the business that took out the loan is located . It would
also be difficult from a reporting standpoint , since such diverse

arrangements as overdraft privileges, credit card accounts ,
accounts receivable financing , revolving lines of credit , various
lease financing , mortgage loans as well as working capital loans

can fall into the " business loan " category .

Sorting out the

varying impacts of all these kinds of loans , determining their

geographic importance and coming to a reasonable CRA assessment

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8

in an examination report would be extremely difficult and of
questionable value .

It would also be very expensive for the

regulators and the industry , and I question whether the expense
would be worth the results that could be achieved .

We have found that knowing on a more " micro " basis the

number and kinds of business loans a bank provides , the terms
under which such credit is extended , and the location of the
businesses involved often tells us more about how well it is
serving the needs of the business community than a " macro " data
bank showing the distribution of all such loans . For example , we

are interested in whether the bank has participated in
government - insured , guaranteed , or subsidized loan programs , such

as the SBA programs and similar state or locally- sponsored
programs . We check to see whether efforts have been made to tell
local businesses , including those which are minority or

women- owned , about the institution's services .

In an urban

setting , we would also consider favorably a bank's support for a
Minority Enterprise Small Business Investment Corporation
( MESBIC ) or Small Business Investment Corporation ( SBIC ) .
of this , however , our examiners would be able to look beyond the
raw data to the purpose of the loan to more accurately judge its
impact on the bank's community . We think this more " micro " data
about the individual bank being reviewed is sufficient to our

purpose and more valuable than the " macro " data that would be
gleaned from a HMDA - type system for all commercial loans .

13 .

A recently released study by the Center for Community Change

found that banks and thrifts lend , on average , 3 times as much in
white middle class neighborhoods than in minority middle class
neighborhoods . Why does this sort of redlining still exist?

Should not enforcement of CRA laws stop redlining ?
I have not seen the study by the Center for Community
Change , although I am familiar with studies published in Atlanta
and Detroit newspapers which had similar findings . Those studies

are correct in pointing out that more home purchase loans were
extended in mostly white neighborhoods than in mostly minority
areas with roughly the same income .

However , none of those

studies could clearly conclude that the lending disparities
resulted from illegal discrimination by lenders . Other possible
explanations are also plausible , such as the influence of other
factors in the market , like the real estate brokers and

appraisers , a failure by lenders to adequately market their
lending services in those areas , and factors relating to the
Though discrimination is a possible cause for
the disparities , it is not prudent to conclude from the studies
done to date that that is the cause without a doubt .

demand for credit .

The conclusion that racial discrimination is the cause for
the disparities cited by the various studies is seriously
questioned by their failure to take into account home improvement

loan activity , which is a significant aspect of housing-related
credit -- and is often especially needed in those low- and

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9

moderate- income areas with older housing stock .

The studies

either omit mention of , or give little credence to , the fact that
loans to those same minority neighborhoods for home improvement
outnumbered home improvement loans to their mostly white
counterparts . If lending patterns were the result of racial

redlining, why would this be the case ?
These studies raise very serious issues , which the Federal
Reserve , along with others , is seeking to address . Yet I do not
think we can conclude , as your question implies , that commercial
banks and thrifts are guilty of racial redlining without a more

thorough analysis of all the factors at work-- including the
frequency of housing turnover in the respective neighborhoods ,
the loan activity of mortgage bankers , and the differences in
loan products offered by commercial banks and other lenders , and
factors other than income that affect creditworthiness .

There

are deeply rooted historical preferences involved-- including , in

some cases , an outright distrust of banks and reluctance to deal
with them

-

that we need to try to understand if we are to

overcome it .

With regard to our enforcement of the CRA , trying to prove
that racial discrimination has taken place is a difficult ,
frequently inconclusive job , given that such a conclusion should

not be reached lightly and should be supported by evidence
showing that persons similarly qualified for purposes of
creditworthiness were treated differently , solely because of their

race or other protected characteristic . Nevertheless , our
examinations do reveal CRA deficiencies -- such as the failure to
effectively market services in minority communities , or the
existence of underwriting criteria which make it more difficult
for minority applicants to qualify for credit--which contribute
to racial disparities in lending . We point these out , and work
with institutions to correct them . But our efforts to enforce
the CRA , the Equal Credit Opportunity Act and the Fair Housing
Act , though conscientious , may not be able to eliminate factors
at work that may go well beyond the particular bank being
examined or the banking system as a whole .

14 .

Each agency's testimony provided data on how many hours

examiners spend per CRA exam .

Clarify your methodology , as it is

uncertain whether each agency followed the same methodology in
calculating the hours .
Attachment E to my testimony ( copy attached ) provides the

number of hours spent per examination , indicated according to
bank asset size . The number of hours included time spent con
ducting the examination on bank premises , conducting community
contact interviews at various locations in the community , and
preparing for the examination in the Reserve Bank--usually in
analyzing HMDA data and reviewing previous examination reports as

well as demographic or other information about the bank's
community .

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10

15 .
Page five of the Federal Reservé's testimony describes the
types of information reviewed in assessing the marketing and

special credit programs assessment factor . At the selection of
the the Federal Reserve , about a dozen CRA exams were provided to
the Subcommittee staff .
Those selected reports had scant
evidence of any special focus on the low and moderate income
neighborhoods in marketing efforts . What explains this seeming
contrast between your testimony and the apparent implementation
of policy ?

I do not believe the examination reports show any such
At the Subcommittee's request , our selection included
some reports for other than " good" performers where such targeted

contrast .

marketing efforts were absent .

Other reports dealt with banks in

communities -- notably, those in rural settings -- which are largely
homogeneous;

I think the reports made this situation clear .

Under the performance category " Community Credit Needs and

Marketing , " the reports describe , where applicable , specific
marketing and advertising efforts aimed at low- and moderate
income segments of the community . Other reports discuss outreach
efforts more generally , such as contacts with realtors , community
breakfasts hosted by a bank branch in a high minority

neighborhood , officer call programs and many other activities
which open the lines of communication between a bank and the
people it serves . Because each bank and its community is
different , the degree to which marketing efforts are targeted to
lower income areas varies accordingly-- and this is appropriately
reflected in reports of examination .

16 .

According to your testimony, the Federal Reserve monitors

CRA compliance with follow - up correspondence and visits . In what
percentage of cases does this occur? Are there other sorts of

supervisory actions which the Federal Reserve has taken ?

Under

what conditions and in what percentage of cases?

The CRA statute does not authorize us to engage in formal
supervisory actions , such as Written Agreements or Cease and
Desist Orders .

Our mandate under the law is to encourage banks

to help address local credit needs throughout their entire
community, and we certainly attempt to do so with our examination
program and through our Community Affairs Program , which has
conducted a great deal of outreach , held hundreds of educational
conferences , and produced a wealth of written information on

community development lending techniques and opportunities.

The

statute also calls upon the Board to take the applicant bank´s
CRA record into account when considering applications for merger ,
acquisition , branching , or forming a holding company - and this

does give us a significant lever for ensuring that banks have
satisfactory records .

As I mentioned in my testimony , we are rigorous in
examination follow - up in those cases where bank performance is
unsatisfactory . The Reserve Banks are responsible for providing

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11

the supervisory attention needed to assist state member banks
with identified CRA weaknesses in improving their performance .
As part of their routine examination followup -- for all

examinations conducted regardless of the rating assigned --Reserve
Banks expect bank management to provide a written response to any
serious adverse CRA findings .

If a bank's response fails to

address examination criticisms in a satisfactory manner , the
Reserve Bank pursues the matter in further correspondence and

meetings with management and boards of directors and through
follow- up examinations .

We do not maintain figures on the

percentage of cases in which this occurs . Of course , examiners
also always check to see that corrective measures have been taken
at the next examination .

Under the Board's examination frequency guidelines , banks
exhibiting significant CRA weaknesses are , by virtue of their
adverse rating , required to be re - examined within 12 months ( in
the case of 3 - rated banks ) or within 6 months ( in the case of 4
and 5 - rated banks ) , rather than according to the standard 18

month interval . In 1988 , and as of the third quarter 1989 , 7
percent of state member banks were assigned ratings of 3 , 4 or 5 ,
and therefore were subject to the more frequent examinations .
Assistance provided by Community Affairs Officers to state

member banks , bank holding companies , and others in developing a
satisfactory record is also provided at the institution's
request--most often on referral by examiners who have identified
CRA weaknesses .

We have no precise figures on what percentage of

state member banks have accepted CAO assistance , but we do know
that our CAO's have helped scores of banks -- not limited to state
members -- in this manner .

17 .
In approximately one third of the Federal Reserve's
protested cases CRA commitments are made . This is a significant

percentage .

What happens in non - protested cases ?

My testimony explained in pages 11-14 that CRA performance
is one of the statutory factors the Board must consider in its

review of certain applications . The CRA merits of the case are
subject to careful review , particularly when a protest has been
filed or when any of the banks party to the application have been
assigned an adverse CRA rating .
In some of these cases we find that corrective measures have
already been taken to address the weaknesses identified during
the examination , and the institution is able to demonstrate to us
In other cases ,
that current performance is satisfactory .
commitments have been made to correct the deficiencies . The
Board and other financial regulatory agencies have believed that
using commitments to improve the bank's record was appropriate ,

constructive , and consistent with what was done when other
aspects of an applicants record needed improvement .

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12

However , that approach has changed somewhat under the
interagency CRA Policy Statement issued in March . Under that
statement , where the overall record of an applicant is
satisfactory but some specific weaknesses are evidenced ( where ,

for example , only one out of several subsidiaries of an applicant
holding company has a less then satisfactory rating ) , commitments
may be offered to enhance performance before processing of the
application is completed . The March Policy Statement clarifies

the agencies ' expectation that applicants will come to them with
a sound program and a good record already in place . The
important thing to note is that , in all cases where any CRA
weaknesses are evidenced , the weaknesses have been fully

addressed through commitments or through corrective action
already implemented before processing is completed .
In 1988 , the Board staff handled 20 cases with adverse CRA
ratings where there was no public protest . Commitments for
improved performance were made in 7 , or 35 percent of those
cases .
In 2 instances , applications were withdrawn by the

applicant , it having been advised by Board staff that CRA
deficiencies posed problems in processing the case . In one other
case , the processing of the application was suspended . Ten
ratings cases were approved without commitments ; in 9 of those ,
the applicant institutions had already taken action to correct
deficiencies and had satisfied their primary regulatory agency
that the action taken was appropriate .
In one case , the

institution's written response to examination criticisms ,
indicating the corrective action to be taken , was deemed adequate
in lieu of formal commitments .

In 1989 the adverse ratings cases which involved no protest
increased to 42.

In 10 , or 24 percent of those cases ,

commitments were made , and 5 applications were withdrawn .
Nineteen cases were approved without commitments. In 11 of those
cases , corrective action had already been taken by the applicant
institutions ; in 5 cases , deficiencies were confined to the
target institutions , and would be corrected by the applicant
( having a demonstrated satisfactory record ) after consummation ;

in one case , the institution had recently come under new
management and steps were being taken to improve CRA performance .
Two cases involved notifications of change in control where CRA

performance is not explicitly one of the factors the Board is
obliged by statute to take into account , but is considered to
have a bearing on the overall competence of management .
In one

change of control case , a determination was made that an adverse
rating , assigned on a preliminary basis to an institution
affiliated with the applicant ( but not directly party to the

application ) , did not affect processing of the case ; in the other
instance CRA performance was deemed to reflect negatively on the

institution's record but did not outweigh other financial ,
managerial and legal considerations .
are pending as of this date .

Eight adverse ratings cases

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13

18 .

Under what conditions will the federal Reserve order a new

CRA examination when an application is being considered , instead
of deferring to the institution's usual examining agency ? How
often does this occur and what have been the results of these new
examinations ?

Our practice is to request the institution's primary
regulator to provide the information needed to construct a
complete, accurate profile of the institution's record when CRA
issues are presented by an application . We have no authority ,
however , to order another agency to conduct an examination , nor

do we make sending one of our examiners into a bank a matter of
routine practice . . Doing so would raise a number of very
problematic issues . However , in cases where examination findings

are outdated our request may lead to a new examination by the
primary regulator .

We may also find that a new CRA examination

is already in progress , or that the primary regulator intends to
begin one shortly when we are performing our analysis of CRA
issues .
In these cases , we generally wait to receive the results
of the new examination before going forward with our analysis .

New examinations were conducted in 6 , or 19 percent of the
31 CRA -protested applications handled in 1988 , and in 4 , or 25
percent of the 16 such cases handled in 1989. In 1988 , 1 new
examination was conducted in an adverse ratings case , repre

senting 5 percent of those cases . In 1989 , new examinations were
conducted in 9 , or 23 percent of these cases . In some of these
cases , generally because other agencies were involved , it is not
clear whether the examination was actually triggered by the
pending application , or whether it simply coincided with the
application on the normal frequency schedule .
Obviously , the results of each of these new examinations are
unique.
In general , the examination findings either reveal that
allegations put forward by a CRA protestant are unfounded , or

suggest that weaknesses do exist in the record - whether or not
they coincide with the protest's concerns .

Where an adverse

rating is at issue , they tell us whether deficiencies noted at
the last examination have been addressed and a satisfactory
rating is now warianted .
We consider examination results to be singularly important ,

and generally we have no reason to disagree with the primary
regulator's rating and assessment . However , the Board must , and
does , render its own decision on the applications that come
before it and on rare occasions has come to a different result

than the primary regulator after its own review .

In 1985 and 1986 99 % of banks received satisfactory ratings .
In 1988 and so far this year , only 93% have . Did banks change or

19 .

did the Federal Reserve ?

First , bank membership in the Federal Reserve is not staticeach year , we gain some state member banks and lose others

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14

through merger , acquisition , or simply withdrawal from the
System .

Since the set of banks we examined in 1985 and 1986 is

not the same one we are examining this year , some difference in
the ratings might be expected .
Second , I would say that the agencies ' examiners have

improved with experience and training , and our expectations
regarding what constitutes a satisfactory record would naturally
increase with time and experience by banks in dealing with their

responsibilities .

If we were to expect in 1988 and 1989 only

what was forthcoming earlier in the decade , then no progress
would have been made . We have worked to enhance the CRA training
given to our examiners , and I am sure we have managed to convey a

sense of concern for thorough , insightful examination findings ,
especially in light of the policy directions in the interagency
CRA Policy Statement . Given these factors , I am not surprised to
see something of a decline in the ratings .

In certain cases the Federal Reserve Board has required CRA
commitments from bank holding companies as part of application

20 .

approvals , or parent companies have reached CRA settlement
agreements with protesting community groups . Frequently , these
commitments must be implemented in part by the companies ' bank

subsidiaries , which are supervised by other regulatory agencies .
What procedures does the Federal Reserve have for monitoring the
implementation of these commitments and / or informing appropriate

regulatory agencies about them ?
As explained in my answer to question 11 , private agreements
are quite different than commitments made to the Board , and are

not enforced - for good reason - by the Federal Reserve .

In many of the cases where commitments are made , the Board
has required annual , semiannual, or quarterly reports to the
Reserve Bank , which reviews them for completeness and adequacy .
These provisions are specifically laid out in the Board's order
containing its decision . Where the banks are state members of
the Federal Reserve System , compliance would also be verified in

conjunction with regular consumer affairs /CRA examinations by the
Reserve Bank . We do not have a specific mechanism for informing
the other agencies , although they will generally know of Board
orders affecting their institutions . Perhaps this is an area
that could be improved , however .

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15

21 .
Page nine of the Consumer Bankers Association's testimony
describes how s . 909 could be interpreted to require banks to

comply with each of the twelve assessment factors . Does the
Federal Reserve Board expect compliance with all twelve of the
assessment factors ?
Yes , but in a limited sense .

As made clear in the uniform

interagency CRA rating system ( copy attached ) , CRA examiners rate
performance in five performance categories -- Community Credit
Needs and Marketing , Types of Credit Offered and Extended ,

Geographic Distribution, Discrimination or other Illegal Credit
Practices , and , Community Development and Other Factors
which

represent groupings of all twelve assessment factors set out in
the regulation implementing the CRA .

Thus all twelve factors are

reviewed .

Yet it is not really correct to say that we expect banks to
" comply " with each of them . Each assessment factor is reviewed
and taken into account under one of the five performance
categories , but we do expect that banks will exhibit varying

levels of activity under the factors for reasons that reflect the
credit needs of its community , or the bank's expertise and
business orientation .
For example , a bank may choose not to participate in
governmentally - insured , guaranteed , or subsidized loan programs

for housing , small business , or small farms , even though
participation in such programs would be considered under the
tenth assessment factor which calls for the review of these
activities . Examiners may conclude , in light of the bank's

performance under the other assessment factors that are weighed
in this category, that the bank i's doing a satisfactory or even
This would be the case if ,
for example , examiners found that the bank lacked the expertise

outstanding job under the category .

to participate in such programs , or that the bank's efforts to
ascertain local credit needs revealed that a need for

federally- assisted mortgage credit simply did not exist in the
community, or was already fully addressed by other institutions .
Examiners might also have found that the range of conventional
loan products offered by the bank was on target in responding to
local needs for credit . The point is that examiners focus on the
totality of efforts made within each grouping of factors that

constitute the performance categories , rather than on single
factors independent of each other .

ER

THRIFT

SUP

OFFIOCEF

139

Office of Thrift Supervision
1989

September 26 , 1989

( Corrected )
The Honorable Alan J. Dixon

Chairman , Subcommittee on Consumer

Dear Senator Dixon :

Thank you for your recent letter requesting additional information
for the record relative to the Community Reinvestment Act
testimony I delivered before the Subcommittee on July 31 , 1989 .

In answering some of the questions you pose , I have avoided

reiterating , to the extent possible , information already provided
in the testimony and supporting material .
2.1 .

How specifically is an institution to ascertain the credit

needs of low- and moderate- income neighborhoods ? How
specifically will an examiner determine whether an institution has
fulfilled this obligation?

The path to a successful and ongoing CRA program begins with
an institution's efforts at ascertaining community credit needs ,

A.1 .

including those of the low- and moderate - income neighborhoods in
These efforts will be somewhat different

the community it serves .

depending upon the size of an institution , its financial

condition , and its location , among other variables .

However , the

key element in the ascertainment process is " outreach . "
successful . CRA effort requires that the institution's officers get
to know the community and make meaningful contacts with local
government officials and with community members , including groups ,
coalitions , and organizations that represent the interests of the

community , including low- and moderate- income neighborhoods . The
information derived from these contacts , in addition to analysis
of demographic data , should form the basis for an effective
assessment of community credit needs .

As part of the examination process , examiners explore the
institution's activities to ascertain credit needs . Examiners
accomplish this by reviewing the institution's own records and
documentation , and by making contacts of their own to gain a
perception of credit needs and how the institution has
communicated with members of the community . OTS policy now
requires that examiners make these outside contacts as a routine
part of the CRA examination .

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Q.2 .

Would marketing only to high income areas and not to

moderate- income areas be non-compliance with the Community

Reinvestment Act ( CRA ) ?
A.2 .

What sort of marketing is required ?

Assuming that an institution had other than high income

areas in its community delineation and its delineation was
properly drawn , marketing efforts aimed only at high income areas
would raise substantive concerns about an institution's commitment
to meet community credit needs . The Act requires the agencies
that enforce the law to assess an institution's record of meeting
the credit needs of its entire community , including low- and
moderate- income neighborhoods . However , neither the Act nor this
agency's regulations require that a certain marketing plan or

approach be utilized.

The CRA examination procedures i submitted

as part of my testimony ) provide guidance to examiners in
assessing whether an institution's marketing efforts are
adequately designed to encourage applications for loans in its
community , particularly low- and moderate- income neighborhoods .
Q.3 .

How do you analyze the geographic distribution of credit ?

How exactly is the HMDA data used ? What would be an acceptable
geographic distribution ? What would be unsatisfactory? Provide
several examples .

A.3 . In addition to analyzing institution efforts at geocoding
credit extensions , examiners typically utilize data compiled under
the Home Mortgage Disclosure Act ' as well as data on non- HMDA loans
to analyze the geographic distribution of credit extensions .
The examiner cannot rely solely on HMDA information and must look
at rejected loans as well as approved loans in order to come to
any hypothesis about lending patterns for further testing .
In addition to HMDA data , OTS examiners have had access to
application data compiled under our Loan Application Register/Data
Submission Report System ( see 12 CFR 528 ) . This data provides
examiners with information relative to where , and in what

proportion , thrift institutions are serving all segments of their
delineated communities . The data enables examiners to identify
potential lending disparities on the basis of race , sex , marital

status , and type of census tract . This aids substantially in the
examiner's formulation of hypotheses for further testing . With
the passage of FIRREA on August 9 , 1989 , financial institutions
covered under the HMDA will be required to compile this type of
information , in addition to data on the income levels of
applicants beginning January 1 , 1990 .

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Each institution's community delineation is different as is each
community's demography . Consequently , it is very difficult to

exemplify an " acceptable " or " unsatisfactory " distribution with
any degree of exactitude .

Essentially , a relatively even and

balanced saturation of loans throughout all income and race

categories would represent an ideal lending pattern , but it would
not serve to indicate anything other than that - an institution
-

could still be discriminating on a prohibited basis .

On the other

hand , if an institution seems to be granting a disproportionately
low amount of credit in an area where credit demands are remaining
unfulfilled , the institution should be encouraged to do more in
meeting those credit needs .

Q.4 .

How many institutions have been approved without conditions

when the financial institution has had a less than satisfactory
rating ?

Records on the number of approvals that have been granted to
institutions with less than satisfactory CRA ratings have not been

A.4 .

retained .
Approvals for these actions were delegated to the
Federal Home Loan Banks , and now to our District offices and no

specific recordkeeping with respect to approvals vis a vis CRA
ratings has been maintained .

The March Joint Statement by the Exan Council encourages a
dialogue between banks /thrifts and community groups through the
expanded CRA statement and public comments thereon . Do you yet
know how many banks and thrifts are now writing expanded CRA
statements and how many are getting comments from community

Q.5 .

groups ?
A.5 .

At this point , we do not have any information responsive to

your question . We , too , are interested in the answer to this
question and will explore ways in which we can capture that data .
Describe how and when examiners contact community groups
In what
during an exam . How do examiners decide whom to contact ?
percent of exams are community groups interviewed ? What are they

2.6 .

asked ?

A.6 . Community contacts are made as part of the examiner's
assessment of an institution's activities in determining credit
needs and in helping to meet the credit needs of its community .
Decisions as to whom to contact are within the purview of the
examiner . However , our examination procedures indicate that the
examiner is to interview a " sampling of community leaders and
interest groups . " Our procedures also provide examiners with a
listing of the types of groups that they should interview .

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-4

Community contacts have been required as part of the CRA

examination since April 1 , 1989. The interview usually consists
of asking questions to learn more about the local community , its
sociology and its economy , and what the predominant community
feelings about how well financial institutions are meeting credit
Given the relative newness of our specialized examination

needs .

program , we do not have a tracking mechanism in place as of yet

that would provide any statistics on these contacts .

We intend ,

as part of our examination data system , to collect information on

outside contacts and monitor our Districts ' activity in this area .
2.7 . When the Federal Reserve Board reviews an application on CRA
grounds , its order on the application routinely includes a
discussion of the issues raised , the Board's assessment of the

bank's performance with respect to those issues , and how its
conclusions affected the final decision .

This type of discussion

has proved helpful - to lenders and community groups alike - in
providing insight into the Board's interpretation of CRA . Are the
other regulatory agencies willing to follow this practice ?
If an application involves a CRA protest , or if the agency
A.7 .
has any CRA concerns that would be evidenced by a denial of the
application , the imposition of conditions on the applicant , or the
offering of commitments by the applicant , OTS would include in the
order its assessment of the CRA issues raised and how its
conclusions affected its final decision .

Q.8 .

Since there are no performance standards for measuring CRA

performance and assigning ratings , what assurance is there that

ratings are assigned consistently by different examiners , within
different regions of each agency, and across agencies ?
In an area as subjective as CRA , there can be no absolute
assurance that there will be consistency in the assignment of

CRA ratings .

Steps can be taken , however , to minimize

inconsistencies and we have endeavored to do so in the following
ways .
First , we have a module in our basic compliance school that

focuses on the CRA rating system through classroom discussion and
an extensive case study . Second , we provide uniform guidance to
all examiners on the CRA rating system through our compliance
Activities Handbook .
Third , our internal review procedures
include monitoring the District offices ' adherence to our national

standards in the compliance and CRA areas . These steps attempt to
assure consistency throughout the entire agency .

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-5

On the interagency level , Ots , along with the FRB , FDIC , and occ
is in the process of developing a uniform CRA rating system in
conformance with the requirements of FIRREA . This new rating
system is being carefully crafted to provide as much guidance as
possible to the examiners who will assign the ratings and to the

public who will soon have access to them . One of the objectives
of this exercise is to minimize the " gray " areas between rating
categories such that clearer and more precise demarcations can be
drawn , thus facilitating the assignment of the rating .
Q.9 .

Do financial institutions derive any benefits for achieving

a top CRA rating?

Should they?

What specific recommendations

would you have ?
The institutions that we regulate do , in a sense , derive
some indirect benefit from achieving top CRA ratings . First ,

A.9 .

institutions with outstanding CRA and compliance ratings are

subjected to examinations on a less frequent basis than those with
lower ratings .

Second , absent a CRA protest or other problems of

a financial nature , an application involving an institution with a
satisfactory CRA performance record is likely to be processed with
fewer hitches .

It is my personal belief that institutions should not receive any
direct benefit for upholding compliance with a law and fulfilling

its mandate .

It is each institution's basic obligation to do ali

it can to improve the community it was chartered to serve ,

consistent with safe and sound operation .
Q.10 .

Some banks claim that their CRA -ratings - have been

downgraded because of agency criticism of their documentation .
This apparently has occurred even when the bank in question was
performing on CRA in a superlative manner .

How much new emphasis

is being placed on CRA documentation as opposed to performance ?
How do you balance the two ?
A.10 .

We are not aware of any situations involving thrift

institutions where CRA performance was downgraded due to an
inability to adequately document CRA activities . The examiner
needs to consider an institution's documentation of its

CRA - related activities along with information gleaned from other
sources in order to arrive at a balanced overall assessment .

Institutions can certainly assist in the process by being
encouraged to provide as much information on CRA activities as
possible in an organized , coherent fashion . This documentation
provides the examiner with a better basis to make judgments about
the effectiveness of an institution's overall CRA program .

institution's overall CRA performance , however , is certainly more
important to us than its ability to adequately document its CRA
activities .

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-6

Q.11 .

Do agency procedures require examiners to review existing

CRA agreements between lending institutions and community groups ?
If so , describe the procedures . Do examiners routinely assess a

financial institution's implementation of such an agreement in
evaluating an institution's CRA performance ? Do the procedures
require examiners to contact the community groups as part of this
evaluation ?

Our CRA examination procedures do not explicitly require
examiners to review private agreements between lenders and

A.11 .

community groups .

During the course of a CRA examination ,

however , examiners should take the existence of such an agreement
into consideration when formulating a performance assessment .

discussion with an applicable community group may aid in reaching
We will consider revising our procedures to make
mention of private agreements as well as the role that such
CRA conclusions .

agreements should play in the assessment process . We do not
believe that examiners or regulatory agencies should be placed ,
however , in the position of enforcing private agreements and any
procedures we might develop would be tempered by that position .
All of the agencies indicate that AMDA data is integral to
CRA evaluations and helps them to determine the degree to which
lenders are serving various parts of their communities with

Q.12 .

respect to mortgage loans .

Would comparable data for commercial

lending be equally useful ?

If not , why not ?

A.12 .

Historically , thrift institutions have been primarily

engaged in housing- related finance and will continue to focus on
that type of lending . --HMDA - type - data on- commercial loans would
not be very useful for us since only about two percent of our
total institution assets are in commercial loans ( based on 1987
data ) .
Q.13 .

A recently released study by the Center for Community

Change found that banks and thrifts lend , on average , 3 times as
much in white middle class neighborhoods than in minority middle
class neighborhoods .

Why does this sort of redlining still exist ?

Should not enforcement of CRA laws stop redlining ?
A.13 . The Center for Community Change's study , as well as news
media reports such as those that appeared in the Atlanta Journal

and Constitution point out that there may , in fact , be disparities
in the availability of mortgage related credit on basis of race ,

property location , or both .

We are deeply concerned about these

types of reports and we are committed to the vigorous enforcement

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-7

Q.14 .

Each agency's testimony provided data on how many hours

examiners spend per CRA exam .

Clarify your methodology , as it is

uncertain whether each agency followed the same methodology in
ing
calculat

the hours .

Exhibit F of my testimony provides the average number of
hours spent in each institution examined during a given year on

A.14 .

CRA according to certain asset size ranges .

To illustrate our

methodology , we informed you that in 1983 , our District offices

spent 3.66 hours on average performing examination procedures for
CRA in institutions with assets of less than

$ 25 million .

This

figure was derived by dividing the total CRA examination hours
spent in institutions with less than $ 25 million in assets in 1983
by the number of institutions examined during 1983 with less than
$ 25 million in assets .

Q.15 .

In the past four years the Bank Board has had 3515

applications , of which 3 were denied on CRA grounds and 7 were
approved with conditions .

The remaining 3505 were approved

without conditions .

Compare these statistics with applications
subject to a protest : more than half ( 5 of 9 protested

applications) were approved with conditions . is it Bank Board
policy generally not to attach conditions unless an application is
protested?
A.15 .

There is no Bank Board policy that would generally preclude

the use of conditions in nonprotested applications.

As indicated

in my testimony , satisfactory CRA performance is a required

regulatory criterion in many types of applications involving
federally- insured institutions . If the CRA rating of an
institution is satisfactory , CRA does not become a regulatory
issue as part of the applications process , unless , of course , the
application is protested or more recent adverse information is
presented . As you are aware , in the majority of cases ,
institutions have been assigned satisfactory CRA ratings .

Consequently , one would not expect to find CRA -related conditions
attached to the majority of approved applications .
Q.16 .

The Bank Board regularly grants requests for extending

comment periods and for holding hearings .
problems with this policy?

Have there been

Have the hearings resulted in delays

in processing applications or not ?

Have the hearings helped the

Bank Board in evaluating applications ?

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-8

A.16 .

We are not aware of any instances where the agency's

decision to extend a comment period or hold an oral argument
has presented a problem for commenters or protestants .

instances , applicants have complained that the extension or the
decision to hold an oral argument will delay the eventual decision
on an application . This is a natural consequence but the agency
believes that affording the public additional time to comment on

an application or providing for an oral argument has proven to be
worthwhile .

An oral argument provides an arena for protestants who frequently
believe they have been unable to obtain an adequate hearing from
the institution or its regulator .

The oral argument should take

place from 10 to 60 days after the decision to hold one is made .
if serious negotiations have been initiated between the applicant
and protestant , the oral argument is sometimes delayed to allow

the negotiations to proceed , so that the parties can find their
own best resolution .

The need to analyze and resolve substantive

issues , whether through negotiation or administrative action ,
usually requires more time than the oral argument process itself .
The oral argument provides an opportunity for face - to - face
discussion among all parties : applicant , protestant , and
regulator .
Especially if the protestants are not represented by

legal counsel, or the equivalent , it also provides them with an
important opportunity for oral elaboration of their written
documents .
0.17 .

Provide examples of supervisory actions the Bank Board has

taken outside the application process .

Under what conditions will

you take supervisory action , and in what percentage of cases have
you done so ?
A.17 .

The CRA makes it clear that its enforcement leverage is

linked to the applications process . There have been no instances
where the Bank Board
used its formal enforcement authority to

address CRA matters ( presumably the focus of your question ) .

The

agency could use its authority to address correction of technical

violations of our CRA regulations ( i.e. , the notice and statement
provisions ) .

Q.18 .

Page 17 of your testimony states that the Bank Board may

invoke its cease and desist authority if an institution does not
fulfill the terms of a condition .
exercised ?

Has this authority ever been

147

A
-9

Again , we are presuming that your question relates to
CRA - related conditions . We have not found it necessary to invoke

A.18 .

our cease and desist authority for an institution's failure to
fulfill the terms of a CRA - related condition .
Q.19 .

What efforts are made to assure uniformity of ratings and

examination criteria among different regions .

Exhibit D to your

testimony shows , for example , that no institution received an
unsatisfactory rating in district 3 while district 11 consistently
had the highest number of unsatisfactory ratings ( in 4 of 5 years

with at least 10% unsatisfactory ratings in the past 3 years) .

Do

district 3 thrifts comply better with CRA than those in district

11 or are examiners using different standards of enforcement ?
We cannot say whether thrift institutions in District 3
have better performance records than those in District 11 . We

A.19 .

can , however , repeat the primary message of our testimony - this
agency diverted much of its available resources over the past
decade to the burgeoning thrift crisis and was not able to devote
as much attention to the CRA and compliance areas as it would have
liked . Consequently , while each District had the same CRA
procedures to work with , the amount of emphasis that each District
-

was able to place on CRA varied , thus resulting in uneven work
products from one District to another .

As mentioned earlier , several factors should serve to minimize

these types of disparities in the future . We now have a
uniform , national examination program in place for the compliance
and CRA areas with the concomitant training and oversight
necessary to make this a successful and responsible undertaking .
As a result of FIRREA , we are participating in an interagency
exercise to develop a uniform CRA rating system .

Explain how Leader Federal Bank for Savings was able to
open a branch office the day after the Bank Board rejected its
application to open another branch on the grounds the conditions
established for the initial branch opening had not been met .
measures will the new Office of Thrift Supervision be taking to

Q.20 .

monitor conditional approvals ?

Essentially , the supervisory agent at the Federal Home Loan
Bank of Cincinnati responsible for Leader made the determination

A.20 .

that the institution had substantially met the CRA conditions

imposed by the Bank Board in May 1988.

This decision enabled

Leader to open the branch . The authority to make such a
determination had been delegated by the Bank Board to the
supervisory agent .

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-10

In its ruling of July 19 , 1989 , the Board determined that while
Leader had made progress toward meeting the previously imposed
conditions , the progress had not been sufficient to justify
additional approvals by the Board . Several major items , which
appeared to be in progress at the time of the supervisory agent's

previous branch approval , were still not completed at the time of
the Board's decision . In addition , a recent examination ,
completed in the interim , raised some new issues . As a result ,

the Board rejected the application under review and advised Leader
not to open the other branches covered by the 1988 resolutions

until the Board or its successor determines that all pertinent
concerns have been addressed .

We believe it is appropriate for the supervisory personnel of the
District offices to continue to monitor conditional approvals ,
including conditions related to CRA . However , we also believe
that a better degree of coordination between the Washington and
District offices for monitoring particularly sensitive issues ,
such as those that sometimes arise in connection with CRA matters ,
would serve to strengthen this system .
I trust that these answers are responsive to your inquiry .

can provide any additional information , please let me know .
,

Jamie collect
Jerauld C.

Kluckman

Acting Director
Division of Compliance Programs

149

QUESTIONS FOR JOHN H. MCDOWELL FROM SENATOR ALAN J. DIXON

1.

How specifically is an institution to ascertain the credit needs
of low- and moderate - income neighborhoods ?

How specifically

will an examiner determine whether an institution has fulfilled
this obligation ?

National banks are responsible for ascertaining the credit needs
of their local communities , including low- and moderate- income
neighborhoods . They are also responsible for determining how to
ascertain those needs . While some banks may use sophisticated

market research to identify credit needs, we encourage all banks
to meet with local entities such as merchants ' associations ,
state and local government officials , community development

organizations , civil rights groups , neighborhood and housing
development organizations , and minority and small business
associations . Local organizations such as these are best able
to provide a bank with information on the credit needs of the
local community .

Examiners review bank records , interview bank personnel , and , in
some cases , meet with local organizations such as those
identified above to determine the extent to which a national
bank has attempted to identify local credit needs . And , most
importantly , examiners will determine how senior management and

the board of directors have responded to any identified local ,
unmet credit needs .

Would marketing only to high income areas and aot to
moderate - income areas be non - compliance with the Community

Reinvestment Act ( CRA ) ? What sort of marketing is required ?
Marketing only to high income areas would be in non-compliance
All national banks subject to the
Community Reinvestment Act have an affirmative obligation to
help meet the credit needs of their entire community , consistent

with the intent of the CRA .

with safe and sound operations .

While no specific marketing is

required , all banks are encouraged to make an effort to ensure
that the entire community , including residents of lower income
neighborhoods are aware of products and services they offer .
Examiners review marketing policies and strategies to determine

if they are designed to inform the entire community of the
credit services offered .

Some of the marketing activities

include :

Any working relationships the banks may have with real
estate brokers or others who service low- and
moderate - income neighborhoods ;

22-155 0 - 90 - 6

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Mortgage counseling programs and programs of management
assistance for small or minority businesses ;
Credit and credit - related services in low- and

moderate - income neighborhoods compared to such services in
other neighborhoods served by the bank ;

Advertising the types of loans the bank is willing to make
in media likely to reach low- and moderate - income
individuals in the bank's local community ; and
Availability of convenient hours in offices accessible to

residents of low- and moderate-income neighborhoods .
3.

How specifically do you analyze the geographic distribution of

credit?

How exactly is the HMDA data used ?

What would be an

acceptable geographic distribution ? What would be
unsatisfactory ? Provide several examples .
For national banks subject to HMDA , examiners can review the

analysis of mortgage lending prepared by the bank , if
available .

If the bank has not analyzed its HMDA data , the

examiner will evaluate the geographic distribution of real
estate loans using the bank's HMDA statement , the HMDA
Aggregation Tables and demographic data about the bank's local

community from the most recent census to determine where the
bank made its loans . For banks not subject to HMDA or for
credits other than real estate loans , examiners rely on other
information such as indications of out of area lending by

analyzing, for example , summary reports of consumer or small
business loans .

Examiners will also review a bank's credit policies to ensure
that they do not have the effect of denying access to credit to

residents of lower income neighborhoods.

Additionally , to

identify any adverse effects on lower income neighborhoods ,
examiners review the bank's record of opening and closing branch
offices and of providing services .

In assessing whether a national bank's geographic distribution
of loans is acceptable or unacceptable , an examiner must first

determine whether the institution's community delineation is
appropriate.

In other words , is the institution capable of

adequately serving the entire community or is the delineation
too large or too small for the institution's financial

capabilities .

Examiners must also review the demographics of

the bank's location to determine if there are any low- to
moderate- income areas and , if so , whether they have been
arbitrarily excluded from the community delineation . A bank's
marketing efforts must also be evaluated . Examiners assess
whether the bank has adequately developed and marketed its
products and services in response to identified credit needs in
all segments of its community .

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The number , type and geographic distribution of loans may differ
for each institution based on its resources , capabilities , the
products and services it offers and its local community's credit
needs . Examiners are trained to incorporate these differences
into their overall assessment of the bank's performance .

Assume for this discussion , that a financially sound national
bank with $ 250 million in assets has delineated its community as

the county in which it is located .
moderate - income census tracts .

The county includes low- to

The national bank examiners have

determined that the bank's community is appropriately
delineated . Examiners then review the bank's analysis of its
lending activity to determine if all segments of the community ,

including low- to moderate - income areas , are receiving lending
activity .

The review includes an analysis of applications

received and the credit standards applied to the applications to

ensure that they are not illegally discriminatory .

If the

analysis reflects that lending activity is occurring in most

segments of the community including the low- to moderate - income
areas , it is deemed acceptable .
Conversely , assume that bank management has documented its
efforts to ascertain the credit needs of its delineated
community , but its marketing efforts are directed only to a very
specialized segment . The types of credit the bank is willing to

offer and extend appear to be inconsistent with those desired
and needed within its community . Thus , only a small percent of
the bank's total loans are to customers within the delineation .
A lack of loans or low loan demand in low- and moderate - income
areas , in the absence of efforts to market loans in those areas ,

would be deemed unacceptable .

Based on the bank's marketing

efforts , and the current composition and geographic distribution

of its loans , management has not demonstrated that it is
sufficiently committed to comply with the spirit or intent of
CRA .

How many applications have been approved without conditions when
the financial institution has had a less than satisfactory
rating ?

Based on an investigation of files and other records from
January 1 , 1987 through August 31 , 1989 , the OCC approved
without conditions 66 applications from 30 national banks with

less than satisfactory CRA ratings .
banks with 5 ratings .

No approvals were given to

One approval was granted to a bank with a

4 rating.

The approval was for a branch that was being
established as part of the bank's plan to improve its CRA
performance . The remaining approvals were granted to banks with
3 ratings . In one case , the approval involved the acquisition
of a failed bank . For most others , the Office determined that
sufficient evidence of improvement in performance was available
to permit the OCC to grant an approval without conditions
although the banks had 3 CRA ratings at the time of approval .

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4

5.

The March Joint Statement by the Exam Council encourages a
dialogue between banks /thrifts and community groups through the
expanded CRA statement and public comments thereon . Do you yet
know how many banks and thrifts are now writing expanded CRA
statements and how many are getting comments from community
groups ?

It is too early to tell how many banks are expanding their CRA
statements to incorporate the information suggested in the CRA
Joint Policy Statement . However , we have received requests from
banks to provide further guidance on expanding their CRA
statements .
6.

Describe how and when examiners contact community groups during
an exam .

How do examiners decide whom to contact ?

In what

percent of exams are community groups interviewed ? What are
they asked ?

Meetings with community groups are performed during an
examination when the examiner determines that there is
insufficient information to objectively assess the bank's CRA
performance or determine whether a bank has engaged in illegal
discriminatory practices . Additionally , examiners may conduct
outside inquiries to determine the validity of a concern

regarding the bank's CRA performance raised by a person or
organization . For instance , concerns about a lack of mortgage
financing might require discussions with non-profit housing

development corporations , a Neighborhood Housing Services group ,
local realtors or the local government housing agency .
Each of OCC's six district offices also maintains an ongoing
program of outreach efforts .

This is an efficient way to obtain

information about entire communities served by several national
banks and provides an information base for adequate CRA and fair
lending analysis . Discussions are normally held with community
development organizations , consumer , neighborhood and small
business groups and housing related organizations . Questions

from the examiners center on the groups ' perception of unmet
credit needs that may exist in their community and how well they
believe banks are meeting community credit needs ; the types of
marketing efforts the local national banks undertake to address

the credit needs of the community including the low- and
moderate-income areas ; and , if small business lending concerns
are being addressed , the types of standards or requirements that
exist for this type of lending .

This office does not track the number of CRA examinations where
outside contacts were made .

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7.

When the Federal Reserve Board reviews an application on CRA
grounds, its order on the application routinely includes a
discussion of the issues raised, the Board's assessment of the

bank's performance with respect to those issues , and how its
conclusions affected the final decision . This type of
discussion has proved helpful -- to lenders and community groups
alike -- in providing insight into the Board's interpretation of
CRA . Are the other regulatory agencies willing to follow this
practice ?

The OCC recently revised its procedures for disclosure of
corporate application decisions involving CRA considerations to

provide easier access to the information for national banks and
the public . As described in Banking Circular 238 ( Appendix
1 ) , the Office will publish decision letters for all cases in

which corporate applications from national banks have been
conditionally approved or denied on grounds related to CRA .
Such letters will be published monthly in an existing OCC
publication titled Interpretations. In addition , all such
decisions will be summarized in the OCC's Quarterly Journal , in

a separate subdivision of the section on " Recent Corporate
Decisions " . The Office believes that publication of these
letters transmitting its conditional approval and denial

decisions , the findings behind those decisions , and conditions
to the decision ( if applicable ) , will convey information and
guidance on the OCC's CRA - related decisions and its use of
assessments of CRA performance in deciding covered corporate
applications .
8.

Since there are no performance standards for measuring CRA
performance and assigning ratings , what assurance is there that
ratings are assigned consistently by different examiners, within

different regions of each agency, and across agencies ?
Although there are no quantifiable standards for CRA
performance , in 1981 the financial regulatory agencies adopted
the Uniform Interagency CRA rating system ( Appendix 2 ) . The
system requires rating five performance categories , or
components , under which the 12 assessment factors of CRA are
grouped .
A thorough description of the characteristics for each
of the ratings is included in the system and financial
institutions must exhibit those characteristics to receive that

rating . We believe that no system would guarantee complete
consistency between examiners, districts, or agencies , but this
rating system does provide sufficient guidance to alleviate
significant deviations and at the same time provides examiners

with the necessary flexibility to adapt to different bank
structures and their corresponding communities ' needs .

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9.

Do financial institutions derive any benefits for achieving a
top CRA rating? Should they? What specific recommendations
would you have ?
Currently , the only benefit a bank receives from a satisfactory
or better performance rating is that , absent a CRA protest or
other public comment opposing the bank's application , decisions
on corporate applications are not delayed because of CRA
considerations . We do not believe that further rewards or
benefits are warranted .

10 .

Some banks
because of
apparently
performing

claim that their CRA ratings have been downgraded
agency criticism of their documentation . This
occurred even when the bank in question was
on CRA in a superlative manner . How much new

emphasis is being placed on CRA documentation as opposed to
performance ? How do you balance the two ?
We have always encouraged national banks to document their
performance to demonstrate how well they are helping to meet the
credit needs of their community . Without this documentation , it
is very difficult for examiners to assess the bank's level of

CRA performance . Because it is bank management's responsibility
to comply with the law , it is also the bank's responsibility to
document its performance .

Documentation of a bank's efforts

provides management with key information necessary for setting
policies , strategies and for self -monitoring . Therefore , we
believe it is appropriate for the CRA rating to reflect the
bank's efforts to document the level of CRA performance .

Additionally , if a bank documents its CRA - related activities it
will be in a far better position to respond to the issues and
concerns raised by consumer and community groups , especially in
a protest situation . For these reasons , we believe it is
critical for banks to document their CRA efforts .
11 .

Do agency procedures require examiners to review existing CRA
agreements between lending institutions and community groups?
If so describe the procedures. Do examiners routinely assess a
financial institution's implementation of such an agreement in
evaluating an institution's CRA performance ? Do the procedures

require examiners to contact the community groups as part of
this evaluation ?

The OCC's examination procedures do not require that examiners
review existing CRA agreements between lending institutions and
community groups . Such agreements are not subject to OCC
approval or enforcement . When assessing the bank's record of
meeting its local community credit needs , the OCC will consider
evidence presented to us , by the parties to the agreement , as to

whether the bank has adhered to the agreement .

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12.

All of the agencies indicate that HMDA data is integral to CRA

A recently released study by the Center for Community Change

found that banks and thrifts lend, on average , 3 times as much
in white middle class neighborhoods than in minority middle

class neighborhoods . Why does this sort of redlining still
exist? Should not enforcement of CRA laws stop redlining ?
We do not believe available data is sufficient to conclude that
redlining exists although it does indicate that depository

institutions may not be effectively marketing their products in
minority neighborhoods. In particular , the various studies do
not consider lien transfer information . They also do not
consider the competition from nondepository institution mortgage
companies who specialize in VA and FHA loans that may be more
attractive to some borrowers . Attached is a copy of OCC's
analysis of an earlier study reported in the " Atlanta
Constitution" that examines some of these issues ( Appendix
3) .

14.

Each agency's testimony provided data on how many hours

As we mentioned in our testimony , the occ does not have precise
information on the amount of time devoted specifically to CRA
examinations . The calculations we provided were based on our
estimate that approximately 20 percent of the time spent on the
consumer protection portion of a compliance examination is
devoted to CRA . The following table provides information on the
average examination hours spent on CRĀ related examinations
during 1987 and 1988 . We translated examiner work days provided
in the testimony into examiner hours by multiplying previously
provided data by eight .

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Examiner Hours Devoted to CRA Examinations

Examiner Hours Per Bank Examined
Asset Size
Under $ 50 million

$

50 million to $ 100 million
$ 100 million to $ 300 million

$ 300 million to $ 1 billion

$ 1 billion to $ 10 billion
Over $ 10 billion

1987

20
20
24
36
72

132

15. The OCC's testimony seems to state a policy about denials of

16.0
21.6
27.2
44.8
64.8
168.0

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16. Your testimony states that the OCC has provided speakers for over 60

Most of the seminars and meetings for which the OCC provided speakers

were sponsored by state bankers and trade associations that have
members from virtually all sectors of the financial services
industry .

To estimate what percentage of the participants represented

national banks is not possible.
17. Pages 3-4 of your testimony state that over the first approximately 20

The results of an examination may indicate a bank has significant
compliance problems requiring an enforcement action based solely on
that particular problem . For instance , an enforcement action was
taken on a bank which required correction of significant violations of
the Equal Credit Opportunity Act and the establishment of systems and
policies to prevent recurrence of these violations . In most cases ,

however , compliance related provisions are included in enforcement
documents that are initiated for both safety and soundness and
compliance concerns . For example , these actions may include
provisions that require the bank to establish a committee to oversee
the compliance function .
The Compliance Committee is then required to
report to the Board of Directors on a specified periodic basis

concerning its efforts to develop a comprehensive compliance program
with adequate policies and procedures . The Board of Directors would
then be required to formally adopt such a plan and include the
approval in their minutes . The bank would also be required to report
on its activities to the OCC's supervising office on a periodic
basis . From the Compliance Program's inception in April , 1987 through
year - end 1988 , 1140 compliance examinations have been conducted .

18. How does the OCC monitor conditional approvals and commitments ?

What

When conditional approval is granted , a method for demonstrating or
reporting compliance with the condition ( s ) is detailed in the decision
transmittal letter . Final approval is not granted , or consummation of
the approved transaction is not permitted , until the bank has provided
the required documentation of compliance . The OCC will send examining
staff on-site , if necessary , to verify compliance with the conditions .

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19. What percentage of banks that the OCC supervises participate in one

The OCC approves national bank equity investments and some debt
investments in community development corporations through the National
Bank Community Development Corporation and Investment Program .
Interpretive Ruling 7.7480 and Banking Circular 185 , which guide the
program , enable banks to carry under " Other Assets " investments in

programs and projects which primarily have a public or community
Banks have used the program to create wholly-owned CDC
subsidiaries , to invest in multi -bank CDCs , to invest in existing
community -based CDCs and to invest in limited partnerships . These
organizations have undertaken activities including : comprehensive

purpose .

economic or housing development strategies in declining areas ;
rehabilitation and construction of low- and moderate - income housing ;

and special programs for emerging small businesses .

As we indicated

in our testimony , 130 national banks have invested equity or debt ( as
of July 1 , 1989 ) in CDCs through this particular program . This is
virtually three percent of all national banks .
However , many national banks participate in community development
corporations without using the OCC's CDC Program . If they make

charitable contributions, there is no requirement for OCC approval .
In addition , banks may make loans to CDCs , consistent with regular
bank lending policies, without OCC approval . We do not track the

number of bank loans or the number of contributions to community
development corporations .
National banks receive OCC approval for debt or equity investments in
CDCs to carry out public purpose activities which either cannot be

carried out within the bank or which are innovative responses to
community needs . These CDC investments are made to complement regular
bank community lending activities , not replace them .

When the OCC reviews a bank's CRA performance , we evaluate the bank's
unique capacities , the special needs and investment opportunities in
its community , and how the bank identifies and helps address those
needs and opportunities , including the bank's participation in various
forms of local community development programs .

The occ does not believe that a national bank's only " CRA lending"
should be administered through a CDC subsidiary or through a CDC in
which it invests with others .

CRA indicates that regulatory agencies

are responsible for encouraging the banks they regulate to help meet
the credit needs of their local communities , including those of low
and moderate- income areas .

National banks should evaluate all of

their lending areas and approaches and take steps to assure that all
the credit products they offer are accessible to qualifying applicants
in all parts of their local communities . They have an obligation to
assure that they understand the credit needs of the entire community
and to develop ways to respond , consistent with the expertise and
resources of the institution .

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Separating all " CRA lending " into a CDC does not promote this kind of
comprehensive view of CRA responsibilities and could tend to limit
unnecessarily a bank's CRA efforts to those defined as " community
development " .

Interpretive Ruling 7.7480 clearly indicates that investments in CDCs
or community development projects are permitted " wherein the bank will
receive an equity interest in or evidence of debt which may have value

in the future but which is clearly not a bankable asset by ordinary
standards . "
OCC Banking Circular 185 makes it clear that " national
bank investments in CDCs or CDC - sponsored projects are intended to
stimulate , not compete with , private sector investment or development
companies . " When a national bank organizes a CDC , it is asked to
explain how the CDC will supplement , and not replace , lending or
investment activity that can be undertaken by the private market , and
the bank itself . National bank investments in all CDC subsidiaries
and projects under Interpretive Ruling 7.7480 are limited to five
percent of capital because these investments are expected to go beyond
ordinary banking activities .
On the other hand , a bank's CDC subsidiary or its participation in a
CDC with other investors can have a significant impact on its CRA
assessment overall . By developing special programs targeted to meet
the needs of customers that would not otherwise have access to the

bank ( i.e. very new businesses or small nonprofit organizations , the
bank CDC may serve as a bridge to facilitate direct financing by the
bank itself .

For example :

O

New small businesses may receive longer term or subordinated
loans from a CDC and thereby qualify for regular lines of
credit from the bank itself; or
A small nonprofit , with limited development experience and
financial resources , may receive construction loans and
technical assistance from a CDC and the bank's real estate

loan department may make mortgages to low- and
moderate - income purchasers of the housing constructed by the
organization .

20. Unlike the other regulatory agencies , OCC uses a random sampling

One half of all national banks and national bank holding companies
with total assets of $ 1 billion or more are examined each year , with
lead banks and individual subsidiaries and affiliates examined on a

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case -by-case basis . Sixteen percent of all other banks are examined
each year . We estimate that institutions representing over 40 percent

of national bank system assets , or over $ 730 billion , are covered by
examinations conducted under the Compliance Program each year .

Because community banks ( banks with less than $ 1 billion in assets )
are selected randomly , it is conceivable that a bank would not appear
in the sample for two , three , or even more years .

If a bank is not

included in the Compliance Program sample, it is still subject to
supervision for compliance . For example , during the second 12 months
of the Compliance Program , compliance with consumer protection
legislation was monitored in over 1200 national banks and compliance
with commercial activity regulations ( e.g. , those implementing the
Bank Secrecy Act ) was monitored in over 1700 national banks . During

the first year of the Compliance Program , approximately 30 percent of
over 225 staff years devoted to supervising applicable compliance
subject areas was expended in banks not examined under the program .
By the second year of the program , this figure was up to almost 37
percent
including follow - up efforts to ensure that problems found
--

the first year had been corrected .

In short , our supervisory approach for promoting and monitoring
compliance is not limited to a sample of national banks ; our
examinations and other supervisory activities are designed to have all
banks comply with the law .

161

Questions for the record for the FDIC from Senator Dixon

Financial institutions are expected to be familiar with the
revised interagency CRA Statement ( issued on March 21 , 1989 ) ,
particularly the section on " Developing an Effective CRA
Process " . While the FDIC does not require any one particular
method or procedure to be used by an institution in determining
the credit needs of low- and moderate- income neighborhoods , we
do require that the methods used accommodate the varying

circumstances and unique characteristics of individual
institutions and neighborhoods .

Essential to the ascertainment

of local credit needs is ongoing institution outreach and
communication with community members and representatives from

local governments , businesses , and community -based
Local individuals and groups should also be able
to initiate communication with officers of local financial

organizations .

institutions regarding CRA . Communication may take the form of
( but is not limited to ) interviews , meetings and studies , such
as surveys .

In addition , an institution may review relevant census data and
the Home Mortgage Disclosure Act ( HMDA ) aggregation
tables to
ascertain present and future home loan demand . Institutions may
also review property tax transfer data maintained by local
jurisdictions . If, for example , properties are being sold but
not financed through local institutions , this could be an
indication that bankers may not be responding to local
housing -related credit needs . Economic forecasts and housing
studies developed by the planning departments of local
governments may also be used .

The FDIC'S CRA implementing regulation , 12 CFR Part 345 ,
requires that specific CRA assessment factors be evaluated in
the determination of an institution's record of CRA performance

( Attachment A ) . The FDIC evaluates the institution's record of
performance relative to each assessment factor through the use
of the Interagency CRA Assessment Rating System .

Performance Categories are currently being used in this rating
process , with the first of these focusing directly on community
credit needs and marketing . FDIC examiners use both the CRA
examination procedures and CRA rating system to determine
whether an institution has fulfilled its obligations to
ascertain the credit needs of the low - and moderate - income

community . A copy of both the CRA examination procedures and
the CRA rating system is attached .
FDIC examiners review and evaluate activities conducted by the
institution to determine whether the credit needs of an

institution's community are being addressed . This includes the
extent of the institution's efforts to communicate with members
of its community , including low- and moderate - income members ,

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regarding the credit services being provided by the
institution . FDIC examiners obtain this information from the
institution's records and through interviews with a
representative sample of persons with whom the lender has said

it has communicated in ascertaining local credit needs .

To

ascertain credit needs , an institution's efforts may include ,

but are not limited to , communication with : customers ;
educational organizations ; local government officials , including
housing and planning staffs ; merchants ' associations ; religious
organizations ; block clubs ; neighborhood organizations ; local
civil rights , consumer , minority , and non-English speaking
groups ; housing counseling service centers ; community

development corporations; nonprofit housing development
corporations ; and local development corporations . Studies

used

by the institution concerning local credit needs are examined .

Further sources of information concerning local credit needs may
be found in any signed comments received in response to the
institution's Community Reinvestment Act ( CRA ) statement and in
consumer complaints concerning the institution .
Q.2 . Would marketing only to high income areas and not to
moderate income areas be noncompliance with CRA ? What sort of
marketing is required ?

The type of marketing viewed positively by the FDIC is that
which causes members of an institution's total delineated
lending community to become aware of the credit services offered
by that institution . Examples of appropriate marketing efforts
may include making marketing presentations to low- and moderate
income community groups , real estate brokers , local businesses
( including small businesses and small farms where such exist )
and to neighborhood , religious , and minority organizations .
addition , providing educational brochures and other materials to
community groups is encouraged . The FDIC CRA examination

procedures indicate the type of actions the FDIC will consider
favorably in evaluating an institution's performance . One

crucial point addressed in the CRA examination procedures is
that the advertising of the types of loans the institution is
willing to make should reach low- and moderate- income
individuals in the institution's local community . Under the CRA
rating system , marketing performance is also evaluated .
An institution would be in noncompliance with the CRA if
low- and moderate-income areas were included as part of an
institution's community delineation and then ignored by that
institution .
Not marketing in the low- and moderate- income
areas of a lending area , while marketing in high income areas ,

is considered by the FDIC as antithetical to the purposes of the
It is clear that the community delineation developed in
response to CRA requirements must not unreasonably exclude low
and moderate- income neighborhoods. Therefore , an institution

CRA .

would not be in compliance with the CRA if a low- or moderate

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income neighborhood were arbitrarily excluded from the
definition of an institution's local community delineation and

therefore , not included in marketing efforts .
Q.3 .
How specifically do you analyze the geographic
distribution of credit ? How exactly is the HMDA data used ? What

would be an acceptable geographic distribution ?
unsatisfactory ?

What would be

Provide several examples .

To understand what an examiner uses to assess an institution's
record of performance , see the attached FDIC CRA examination
procedures ( Attachment B ) and CRA rating system relative to

determining and evaluating an institution's geographic

distribution of credit ( Attachment c) .

The goal here is for the

institution to make appropriate portions of credit available to

all areas within its identified iending community.

Evidence to

determine appropriate ( i.e. , fiscally sound and reasonable )
geographic distribution is to be found in the institution's

credit extensions , applications and denials . The determination
of what constitutes an acceptable geographic pattern of lending
under the CRA is relative , based on an evaluation of the
interplay of pertinent factors , such as the institution's

housing lending efforts relative to loan demand , the financial
position of the institution , and credit commitments as outlined
in the institution's CRA statement .
From a regulatory standpoint , HMDA statements serve as a tool

for closer analysis , if and when problems concerning an
institution's CRA compliance are suspected .

The HMDA statement

is generally considered a reliable indication of the number and
dollar amount of mortgage loans extended in an institution's
lending area .
HMDA aggregation table data is provided to field

examiners .

By using this data, examiners can get an estimate of

housing loan activity for the more urban institutions by census
tract .

Currently , FDIC examiners use HMDA data to compare the lending
patterns of the bank being examined against those of competing

institutions in the lending area .

If it is seen that competing

institutions are making loans in what have been identified as

low- to moderate - income census tracts and the institution being
examined is not , examiners will explore the reasons behind the
discrepancy .

While such a discrepancy could be interpreted as suspicious , a
lending institution could contend that : a ) despite acceptable

outreach efforts , the loan demand from these areas was not
forthcoming ; or b ) the creditworthiness of applicants from these
areas disallowed acceptance . Depending on the types of credit
the bank offers , the degree of difference in apparent
performance among similarly situated lenders , and the overall
compliance performance of the bank being examined , the FDIC

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examiner may undertake an in - depth examination which could
entail a geocoding of loan applications received . If disparate
lending patterns are found , an analysis would be made of the

reasons for denial and the validity of such reasons , as compared
to the characteristics among the applications approved .
By way of further example , a review of an institution's HMDA
statement may reveal a disproportionately low number of loans in
low- or moderate- income areas relative to other areas in the
community .

If such a trend is found , FDIC examiners investigate

further into the reasons for any such pattern .

If such a

lending pattern cannot be justified , this would serve as a basis
for a less than satisfactory CRA rating .

The FDIC would then

advise the institution to improve its record by seeking to meet
the credit needs of all segments in its lending community by

applying the specific elements of an effective CRA process as
outlined in the revised interagency CRA statement .
Although HMDA statements alone are not capable of supporting
conclusive interpretations ( e.g. that solely on the basis of few
loans in low- or moderate- income areas relative to other areas ,
there has been a violation of CRA or fair lending laws ) , a HMDA
statement which leads to questions about an institution's

lending patterns serves as a valuable indicator for FDIC
examiners . It causes an examiner to research , for example ,
whether omitted census tracts are indeed zoned residential ,
whether an institution's advertising of loan programs is
actually reaching residents of these locales , and whether any
demand for loans has emanated from these areas and , if not , why
not .
These questions tie in directly with other CRA assessment

factors . Negative findings based on these factors have resulted
in FDIC- initiated sanctions , including memoranda of
understanding, delayed or conditional approval of applications ,
and application denials .
Finally , under recent amendments to HMDA , FDIC examiners will be

able to access records kept ( Loan Application Register ) by the
financial institutions , which will disclose all the information
previously obtained manually . with the new statutory :
requirements that the race , sex and income of all applicants and
borrowers be supplied by geographic location , as well as the

action taken on specific applications , the review of a lender's
housing-related lending performance will be widely enhanced and
simplified .

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2.4 .
How many applications have been approved without
conditions when the financial institution has had a less than
satisfactory rating ?

The following table indicates approved CRA - covered applications
for the years 1984 through the first half of 1989 :

Approved

1,580

1,402

1,515

1,750

839

1,801

Without a time - consuming manual review of all application
approvals , the FDIC is unable to identify CRA - related conditions

attached to approvals .

However , in our testimony before the

Senate Banking Committee in March of 1988 , we stated that no
FDIC - supervised institution rated less than satisfactory on the

basis of compliance with CRA has had its application approved
without agreeing to appropriate corrective actions to favorably
resolve FDIC - identified , CRA - related problems .

Commitments to

corrective actions are usually not as formal as memoranda of
understanding or conditional approvals. Institutions not
agreeing to such commitments either withdraw their applications
or risk denial or approval-with-conditions . Since the Community
Reinvestment Act's inception , the FDIC has denied three

applications for deposit facilities due to CRA factors .
During the past five years , out of 17 protested applications ,

one was conditionally approved , 14 were approved without
conditions , and two were withdrawn .
Q.5 .

The March Joint Statement by the Exam Council

encourages a dialogue between banks / thrifts and community groups
through the expanded CRA statement and public comments thereon .

Do you yet know how many banks and thrifts are now writing
expanded CRA statements and how many are getting comments from
community groups ?

It is really too early to estimate the effect of the March
We expect to have data on this within one year .
Unfortunately , in the past , we have found that institutions
receive few comments for the public file .
Statement .

2.6 .
Describe how and when examiners contact community
groups during an exam . Howdo examiners decide whom to
.

contact ?

In what percent of exams are community groups

interviewed ?

What are they asked ?

In 1980 , the FDIC established its outside contact policy .

This

policy provides that examiners should make the following outside

contacts during regular compliance examinations when necessary

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to assess the bank's performance in meeting community credit
needs under the CRA :
Any person or organization that has , in a CRA comment to
the public file , specifically requested to speak to an
examiner ;

Any person or organization that has raised a substantial
issue in a CRA comment letter which requires further
explanation and / or verification -- such persons or

organizations should be contacted even where they have
not made a specific request for a meeting ; and
A representative sample of persons or organizations with
whom the lender has said it communicated -- this form of
outside contact would normally be made only in
circumstances where the examiner or other agency
representative determined a need to independently verify
the lender's performance in ascertaining local credit
needs .
The initial contacts should be made by telephone .

A

subsequent meeting between the commenter ( s ) and a designated
agency representative may be arranged as necessary .
Meetings should be scheduled to accommodate , to every
reasonable extent , the commenter's schedule and convenience .
Data is not available as to what percent of examinations include

the interviewing of community group representatives . Generally ,
when contacted , groups are asked about the institution's efforts
to communicate with members of its community , including those of
low- and moderate - income , regarding the ascertainment of credit

needs and the provision of credit services .

Examiners also

verify communication the institution stated it had with
community members .

When the Federal Reserve Board reviews an application
2.7 .
on CRA grounds , its order on the application routinely includes
a discussion of the issues raised , the Board's assessment of the
bank's performance with respect to those issues , and how
conclusions affected the final decision . This type of

its

to lenders and community groups
discussion has proved helpful
alike -- in providing insight into the Board's interpretation of
CRA . Are the other regulatory agencies willing to follow this
practice ?

The FDIC issues a formal statement which accompanies an FDIC
Order to approve or deny an application . These documents are
available to the public .

The statement summarizes the FDIC'S

assessment of the statutory factors that must be resolved prior
to approval or denial of an application and its conclusions with

respect to any issues raised regarding the CRA and other

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protests .

Where an application has been protested , the FDIC

also sends a letter to the protestants explaining the action
taken .

In addition , Section 303.6 ( g) ( 2 ) of the FDIC regulations
requires that a summary assessment of an institution's CRA
performance be included in the public portion of an application

file . This policy has been in effect since 1980.

Each summary

contains the date of the assessment , a synopsis of assessment
results , and a conclusion as to the institution's record of CRA
performance .

Q.8 .

Since there are no performance standards for measuring

CRA performance and assigning ratings , what assurance is there
that ratings are assigned consistently by different examiners ,

within different regions of each agency , and across agencies ?
The CRA examination procedures and the Interagency CRA
Assessment Rating System currently used by the FDIC contain the
broad outlines of CRA performance standards . However , judging

the CRA performance of an institution is a relative process .
This process does not rely on absolute performance standards
since the performance of the institution is related to the needs
of the community and the ability of the institution to meet
those needs . However , because the process is relative does not

mean that there are no performance standards .

Examiners attempt

to review and evaluate a variety of unique complex factors in

order to judge an institution's record of CRA performance. The
judgment occurs based on a foundation of broad standards set
forth in the CRA examination procedures and in the CRA rating
system .

Regarding consistency in ratings , ratings must be reviewed by
senior level field and regional office examination staff members
who have had extensive experience with both safety and soundness

and consumer compliance examinations .

Moreover , these

individuals have interacted with a wide variety of institutions
as to size , situation , region , and locale . While the CRA
examination process is largely judgmental, FDIC management
believes that adequate supervisory oversight serves to limit the
potential for rating inconsistencies .

The FDIC's examiner

training efforts also serve to limit inconsistency through the
use of valid and reliable analytical methods and evaluation

techniques . The FDIC's Consumer Compliance Coordinator
supervisory program is currently being developed , and Compliance
Coordinators have now been selected for each of the FDIC'S 94
field offices . Periodic , in - depth consumer compliance training
will be provided to these specialized Coordinators ( for a more

extensive explanation of this effort , see the FDIC'S July 31 ,
1989 Senate testimony ) .

1

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The FDIC strives for consistency with the other agencies by

using the Interagency CRA Assessment Rating System and CRA
examination procedures developed on an interagency basis .

The

FFIEC Consumer Compliance Task Force is developing a revised CRA
rating system pursuant to FIRREA . The Task Force is also
updating the CRA examination procedures as well as developing an

interagency training program to implement the revised CRA rating
system in 1990 .
Q.9 .
Do financial institutions derive any benefits for
achieving a top CRA rating ? Should they ? What specific
recommendations would you have ?

The top CRA ratings currently are 1 and 2. Rating ( 1 ) indicates
that an institution has a strong record of meeting community
credit needs ; that both the board of directors and management
take an active part in the process and demonstrate an

affirmative commitment to the community ; that an institution
receiving this rating normally ranks high in all performance
categories , has a commendable record , and needs no further
encouragement .
Rating ( 2 ) indicates that an institution has a
satisfactory record of helping to meet community credit needs ;
that it is ranked in the satisfactory levels of the performance

categories ; and that it may require some encouragement to help
meet community credit needs .
Financial institutions find that satisfactory or better

compliance with CRA can prove beneficial .

A top rating can

prevent complaints and protests which may be costly in terms of
application time delays and possible denials , as well
as potential adverse publicity . Such a rating also evidences an

overall good business relationship between the institution and
its community . Thus , we believe institutions with a top CRA
rating do realize benefits .

We have no specific

recommendations .
Q.10 .
Some banks claim that their CRA ratings have been
downgraded because of agency criticism of their documentation .
This apparently has occurred even when the bank in question was
performing on CRA in a superlative manner . How much new
emphasis is being placed on CRA documentation as opposed to
performance ? How do you balance the two ?

Reasonable documentation provides verification of an
institution's CRA program and performance .

As a party to the

revised interagency CRA Statement issued earlier this year , the
FDIC supports the emphasis on documentation .

The FDIC does not ,

however , consider this a new focus since reasonable
documentation has been stressed throughout the FDIC CRA

examination procedures . In the CRA examination procedures ,
examiners are directed to " ascertain from institution records "
certain performance standards , which necessarily calls for

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reasonable documentation .

Poor documentation practices cause

institutions to run unnecessary risks when possible CRA - related

problems arise .

However , we are unaware of any institution's

CRA ratings that have been downgraded due to a lack of or poor
documentation .

Q.11 .

Do agency procedures require examiners to review

existing CRA agreements between lending institutions and
community groups ?
If so , describe the procedures . Do examiners

routinely assess a financial institution's implementation of
such an agreement in evaluating an institution's CRA
performance ? Do the procedures require examiners to contact the

community groups as part of this evaluation ?
Examiners are not specifically required to review such CRA
agreements . However , to the extent a CRA agreement is involved

in an institution's efforts to comply with the CRA or to the
extent that an institution requests the activities cited in an
agreement to supplement other CRA - related activities , the FDIC
examiner will review such activities . This review would
determine whether the institution is in fact acting in
accordance with the agreement . Examiners are not required to

contact any particular community groups in this regard .
All of the agencies indicate that HMDA data is
Q.12 .
integral to CRA evaluations and helps them to determine the
degree to which lenders are serving various parts of their

communities with respect to mortgage loans .

Would comparable

data for commercial lending be equally useful?

If not , why not ?

HMDA was enacted following problems in fair housing lending

which were identified by many groups and individuals .

Thus far ,

complaints alleging problems within the area of commercial
lending have not materialized . The FDIC , therefore , does not
see much value in gathering such data .

If a pervasive

CRA - related problem were to develop causing potential business
borrowers undue hardship , the FDIC would reconsider its stand .
A recently released study by the Center for Community
Q.13 .
Change found that banks and thrifts lend , on average , 3 times as
much in white middle class neighborhoods than in minority middle
class neighborhoods . Why does this sort of redlining still
exist ? Should not enforcement of CRA laws stop redlining?

The methodology used to determine these conclusions must be

scrutinized for validity and reliability .

Assuming the

methodology is reliable , causative variables must then be
determined and tested since correlation does not necessarily
mean causation .
One critical factor to investigate would be
loan demand data .
Information on applicant denials , not
currently available to the public , may contain pertinent

explanatory information .

For example , there may be significant

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numbers of applicants rejected for reasons such as poor credit
history , insufficient income, unacceptably high debt - to - income
ratio , etc.

The Department of Justice ( DOJ )

is currently

undertaking an extensive analysis of lending data from a number
of lending institutions in one large urban area to better
understand the underlying reasons for correlations indicating
possible lending bias . The FDIC hopes to meet with DOJ staff to
discuss the results of these research efforts when they are
completed .
Effective enforcement of the ECOA , HMDA , CRA and the Fair

Housing Act should help prevent illegal redlining. The FDIC
receives very few fair housing complaints . Should an
enforcement problem be determined to exist based on indications
from DOJ research or other sources , the FDIC will take
appropriate action .
Q.14 . . Each agency's testimony provided data on how many
hours examiners spend per CRA exam . Clarify your methodology .
as it is uncertain whether each agency followed the same
methodology

in calculating the hours .

The FDIC provided the following information to the subcommittee
in July of 1989 regarding examiner hours spent per CRA exam .
Actual hours spent on CRA examinations may relate more to

the type of institution ( e.g. , commercial vs. savings
institution , wholesale vs. retail)

than to asset size .

For

special CRA examinations which are conducted in response to
an institution application or a protest , the number of hours
expended may be higher than average . The following Table
shows the average number of hours spent per examination on
CRA compliance matters :
Average Hours Expended Per Examination on CRA
from 1985 through 1988 by Asset Size of Bank

Average Hours
$ 0-50
million

1985
1986
1987
1988

Up
ur
un

Per Exam

$ 50-100
million

4 1/2

6

5

6 1/2

5
5

5 1/2
6 1/2

$ 100-500
million

10 1/2

Over $ 500

24 1/2

8
8

29

9

22

16 1/2

The FDIC used an average where the total number of hours expended
was divided by the number of institutions examined . We computed
the figures by asset size in order to capture the variations by
size . The numbers represent hours spent examining for compliance

with the CRA and HMDA .

These figures would increase if hours spent

on examining for compliance with the Fair Housing Act and Equal
Credit Opportunity Act were included .

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Q.15 . The FDIC's testimony lists the possible enforcement actions
as unsatisfactory ratings , corrective advisements and memoranda of

understanding, application denials , and cease and desist orders .
Since only two percent of FDIC - supervised banks get unsatisfactory
ratings and no applications have been denied in the past five
years , what evidence is there of strong CRA enforcement ? HOW

frequently have corrective advisements , memoranda of understanding ,
and cease and desist orders been

issued ?

Evidence of strong FDIC enforcement of CRA includes the following :

satisfactory or better CRA and compliance composite ratings for the
large majority of FDIC -supervised banks and the receipt of few
complaints , protests and telephone complaints and inquiries .
The following table indicates , by two - year increments , FDIC
measures to enforce compliance with consumer and civil rights
mandates ( corrective advisements were not included in our final
testimony ) :
1980

1982

1984

1986

1988

6,305

5,359

1,881

1,228

3,066

471

426

296

101

992

9

27

72

45

123

3

3

1

1

3

Number of Compliance
Examinations

Number of Compliance
Visitations
* Number of Memoranda

* Number of Cease and
Desist Orders pertain
ing to consumer
Compliance

*May not always involve CRA
Note :

Each examination report is sent to institution management

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state regulators where appropriate ,
discipline . Although that level of
appropriate at the time , conditions
During the past four years , we have

and increased market
supervision may have been
subsequently changed .
increased our staff

substantially and will continue to do so .

We are dedicated to

reestablishing a strong and credible program for consumer
compliance examinations and enforcement within our established
supervision division .

The FDIC's testimony states , " The goal is to examine
Q.16 .
banks rated 4 and 5 for compliance at least every 12 months , and
banks rated 1 , 2 , or 3 at least every 24 months , with

visitations conducted as necessary . "

The above -mentioned frequency goals for compliance examinations
went into effect in the latter part of 1988 .

The following is

an aging schedule for FDIC regulated institutions examined for
compliance , including CRA , on or prior to March 31 , 1989 .

We do

not have a separate agency schedule just for CRA examinations .

Number
1 & 2*

Number

Exams

Exams
0-2yrs .

Number
4 & 5*

Exams
0 - lyr .
old

25 ( 40 % )

* Composite consumer compliance rating .
We should explain however , that recently notable safety and

soundness problems in the industry have caused some diversion
of resources from consumer compliance examinations. With
increasing resources , renewed emphasis is being placed on

compliance examinations and meeting our examination frequency
goals .
Q.17 .

In the past five years no application has been

conditionally approved by the FDIC , except for one of the
applications protested .
If an institution complies with CRA ,
it does not need conditions attached to its application just
because a protest has occurred . If an institution does not
comply with CRA , then conditions should be added or the
application denied whether or not a protest occurs , Explain

why more nonprotested applications are not conditionally
approved ?

Again , we are not aware of any FDIC - supervised institution
rated less than satisfactory on the basis of compliance with

the CRA that has had an application approved without agreeing
to appropriate corrective actions to favorably resolve FDIC
identified ,

CRA - related problems .

Most situations do not

require the attachment of conditions ; however , the FDIC has

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that important option available which it has chosen to use

sparingly . Almost always , FDIC - supervised institutions with
CRA - related problems called to their attention by examiners

move to correct such problems in a timely manner.

22-155 ( 184 )