Federal banking regulators' latest guidance on complying with the Community Reinvestment Act is drawing mixed responses from industry trade groups.
The May 3 proposal would give an institution CRA credit for loans or investments outside its assessment area, the geographic area where the bank's track record is evaluated. However, it would limit credit for recurring small-business and farm lending and for some purchases of mortgage-backed securities.
In its comment letter on the plan, the American Bankers Association argued against broadening the geographic reach of community reinvestment rules. The ABA said banks look for CRA-qualified investments outside their local communities because they exhaust those opportunities in their assessment areas.
A better course would be to broaden the types of loans and investments that qualify under CRA, said James D. McLaughlin, the ABA's director of regulatory and trust affairs.
However, comment letters filed by America's Community Bankers, the Consumer Bankers Association, the Financial Services Roundtable, and the Independent Community Bankers of America all supported CRA credit for activities conducted outside a bank's assessment area.
"Sometimes there is no lender or assessment area where the money is going," said Charlotte Bahin, regulatory counsel of America's Community Bankers. "It may bring in money and jobs that ultimately affect the assessment area."
Under the proposal, arranged in a question-and-answer format, examiners would not count renewals or refinancings of loans to small businesses unless the amount of credit was increased. Another option: Institutions could report one renewal or refinancing a year on each loan. More frequent reporting "would inflate the actual amounts" of small-business and farm lending, according to the proposal.
The Consumer Bankers Association objected in its comment letter, claiming that without renewals, "small-business lending would be underreported by as much as 35%."
Neither possibility satisfied the Financial Services Roundtable, which said it would be difficult for banks to determine how many refinancings and renewals were to the same borrowers.
But America's Community Bankers said tallying only one loan extension is fair. "In other CRA contexts, you don't get credit for an ongoing event," Ms. Bahin said.
Finally, the CRA proposal suggested institutions may not receive CRA credit for buying securities backed by mortgages that they originated.
The ABA and America's Community Bankers agreed, but the Roundtable argued it does not matter who the buyer is, because the sale provides liquidity. "That money does move and is available again for more loans," said Edward Hill, the Roundtable's director of regulatory affairs. "There are tangible benefits to communities of making loans and then selling them to another area of the bank."
The Consumer Bankers Association comment letter echoed that sentiment. "This is not a case of double counting, but of the CRA regulation recognizing the value of two totally different phenomena."
The Federal Financial Institutions Examination Council received 67 comment letters by the July 2 deadline.
