Will the regulators speak with one voice on CRA reform?
WASHINGTON — The Office of the Comptroller of the Currency has been leading the charge on revamping the Community Reinvestment Act, but a big unknown is whether the other two regulators charged with carrying out the law are committed to moving ahead as swiftly on a reform plan.
For months, industry and consumer groups have expressed optimism that the agencies are serious about modernizing the 40-year-old law. In February, Comptroller of the Currency Joseph Otting said regulators planned to have a CRA reform proposal out for comment by the end of March.
But that timeline has proven overly aggressive. The OCC may want all three agencies involved in implementing CRA to speak with one voice, rather than go it alone, but the Federal Reserve Board and the Federal Deposit Insurance Corp. have yet to join the OCC in committing to a quick rollout. Part of the delay may have to do with staffing. Senate confirmation of the administration's choice to run the FDIC, Jelena McWilliams, is still pending, and four of the seven seats on the Fed board are vacant.
“Given that the Trump administration is still waiting for its FDIC pick, the OCC clearly has a first-mover advantage, which impacts the deregulatory timelines,” said Isaac Boltansky, director of policy research for Compass Point Research & Trading. “Rulemaking takes time even when agencies are fully staffed and firing on all cylinders, and the Trump administration is still staffing key positions.”
The OCC could theoretically move ahead on a CRA reform plan on its own, which would affect just the banks under its watch. But that would be a break from tradition, and companies may protest if a disjointed effort produced inconsistent CRA rules across different charter types.
Most observers believe the regulators will try to present a unified front, which could slow down the speed of any reform effort. Some note that a proposal may not materialize before a new FDIC chair is confirmed. (The current FDIC chairman, Martin Gruenberg, is an Obama administration appointee.)
In remarks last week, Otting revised his projected timeline, saying he hopes the three agencies can move forward together. But he also did not rule out the possibility of the OCC moving ahead alone. Meanwhile, the Treasury Department released its own blueprint on reforming CRA, but it appeared to leave much of the practical work of modernizing the policy to the regulators.
“I am hopeful and confident that they will join us in this journey,” Otting, speaking at an Independent Community Bankers of America conference, said of the Fed and FDIC. He said the OCC believes “in the next two to four weeks, we will be able to release a joint agency document that will go out for advance notice for comments . . . to try to put forth a rule later in the year.”
An OCC spokesman said the three agencies are discussing how to move forward, but the notice for Tuesday's open meeting of the FDIC board of directors included no mention of a CRA plan.
“The OCC continues to work with the other federal banking agencies to finalize and publish an Advance Notice of Proposed rulemaking soon to solicit stakeholder comment on how best to modernize our regulatory approach to the Community Reinvestment Act,” said OCC spokesman Bryan Hubbard.
That said the OCC could separately release its own notice for comment without the other agencies. The OCC did this in August under acting Comptroller Keith Noreika when it solicited public comment on how to simplify the Volcker Rule, a regulation mandated by the Dodd-Frank — and written by multiple agencies — to restrict banks' proprietary trading.
During the Consumer Bankers Association’s annual conference in March, officials from all three agencies said they would closely read the public comments regardless of whether or not all the regulators join the OCC on the first notice. Some officials indicated they were still formulating an opinion on a path forward.
“We don’t know” what direction the Fed will take, said Theresa Stark, a senior policy analyst at the Federal Reserve Board. “One thing that I do anticipate is we will all read the comments” in response to the first notice.
Each agency could launch its own effort to collect public comments at the outset, which could then evolve into the three of them working together or deciding to go in a different direction, regulators at the conference said.
“There’s also the chance that the comments that come back could give us more thought or bring up some ideas that kind of take us in a slightly different direction where we go back out and get comments again,” said Vonda Eanes, director for CRA and fair lending policy at the OCC, during the conference. “At this point, we can’t say what’s going to happen.”
The CRA, which requires banks to meet the needs of communities they serve, has long been controversial and has not undergone a significant revamp since the Clinton administration. But in recent years, both consumer groups and bankers have agreed that the way banks are graded is outdated and CRA evaluations need to be enhanced to more accurately reflect banks' efforts.
Otting has said that the OCC would consider ways of expanding CRA assessment areas and clarifying the grading system based on a uniform set of standards, among other changes. But the details of how to grade lenders within their communities will likely pose new challenges when regulators begin taking comments.
“The CRA needs a complete makeover, particularly with regard to what assets count as reinvestment credits, and how banks are judged for meeting those standards,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics. “But judging banks, especially by a single number, is a complex process and it remains to be seen whether or not the” incoming proposed “changes leads to a much more meaningful reinvestment or just another set of checking the boxes.”