Understanding the

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National Disability InstituteReal Economic
Impact Tour2011 Mayors Leadership Academy

• Understanding the
• Community reinvestment Act

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What Is CRA?

• CRA Statute --12 USC 2901 (Reg. 12 CFR 25)
• 1977 Congress passed the Community
  Reinvestment Act Federal banking regulatory
  agencies issued Regulation BB to implement law.
• Enacted to prevent redlining and to encourage
  financial institutions to help meet the credit
  needs of all segments of their communities,
  including low- and moderate-income (LMI)
  neighborhoods
• Including low- and moderate-income individuals
  and tracts.
• Including businesses/farms of different sizes and
  borrowers of different income levels.
• Consistent with safe and sound operations.

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What is CRA?

• CRA requires regulators of federal financial
  institutions to assess the record of each bank
  and thrift in helping to fulfill their
  obligations to the community and to consider that
  record in evaluating applications for charters or
  for the approval of bank mergers, acquisitions,
  and branch openings
• CRA applies to federally insured depository
  institutions, national banks, thrifts, and
  state-chartered commercial and savings banks

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Key Definitions
Assessment Area

• Each bank is evaluated on how well it serves its
  assessment area
• Assessment area
• Geographies in which bank has its main office,
  branches, and deposit taking ATMs
• Surrounding areas where bank has originated or
  purchased a substantial portion of its loans
• Must consist of whole geographies

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Key Definitions
Performance Context

• A banks performance is judged in the context of
  information about the bank and its Assessment
  Area, including
• demographic data on median income levels,
  distribution of
• household income, nature of housing stock,
  housing costs and other relevant data
• lending, investment and service opportunities
• the banks product offerings and business
  strategy, capacity and constraints, past
  performance and the performance of similarly
  situated lenders
• the banks public file and any written comments
  about the banks CRA performance
• any other relevant information

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Key Definitions

LMI

• Low- and Moderate-Income (LMI) is based on area
  median income (AMI) of a geography, based on
  census data
• Low-income lt 50 of median income
• Moderate-income 50 - lt 80 of median income
• Middle-income 80 - lt 120 of the median income
• Upper-income 120 or more of the median income
• AMI - annual income figure for which there are as
  many families with incomes below that level as
  there are above that level
• For metro areas use the MSAs Median Family
  Income
• For rural areas use the Statewide
• Non-metropolitan Median Family Income

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Key Definitions
Community Development

• Affordable Housing for LMI individuals
• Community services targeted to LMI individuals
• Activities that promote economic development by
  financing small business/farms.
• Area Revitalization and Stabilization
• Low- or moderate-income geographies
• Designated disaster areas or
• Distressed non-metropolitan middle-income
  geographies
• Underserved non-metropolitan
• middle-income geographies

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Key Definitions
Qualified Investment

• Lawful investment, deposit, membership share, or
  grant that has community development as its
  primary purpose
• Examples
• financial intermediaries that lend in LMI areas
  or to LMI individuals in order to promote
  community development
• organizations that promote economic development
  by financing small business
• facilities that promote community development in
  LMI areas for LMI individuals
• projects eligible for low-income
• housing tax credits.

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Types of CRA Examinations

• Exam Types
• Small Bank
• Intermediate Small Bank (ISB)
• Large Bank
• http//www.ffiec.gov/cra/examinations.htm

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Small Bank Test

• Banks with assets under 280 million
• Exam Criteria
• Loan to deposit ratio
• Lending inside and outside of the assessment area
• Distribution of loans by geography
• Distribution of loans by borrower income and
  revenue size
• Responses to CRA related complaints

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ISB and Large Bank Test

• Banks with assets between 280 million and 1.122
  billion are intermediate small banks or
  referred to as ISBs.
• Exam criteria
• Lending Test
• Investment Test
• Service Test

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CRA Ratings

• A banks record of meeting community needs is
  considered during an application review for a
  merger, acquisition, or branching
• Outstanding
• Satisfactory (High Sat/Low Sat)
• Needs to Improve
• Substantial Noncompliance

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Good CRA Opportunities for Banks

• Loans, services and investments that clearly
  benefit qualified populations and geographies.
• Loans, services and investments related to
  community development activities .
• For small banks, primarily Real Estate and Small
  Business Lending.
• For large banks and ISBs, can be greater regional
  market that includes assessment area more
  complex activities.

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What Banks Look for in Partners

• Capacity
• Proven Performance
• Sustainability
• Assessment and Responsiveness
• Innovation
• Target Market Penetration
• Recordkeeping and Accountability

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CRA Challenges

• Documentation of eligibility and impact.
• Capturing income data related to activities.
• Ensuring activities fulfill intended outcome.
• Training and technical expertise in development
  programs.
• Adequate documentation for underwriting.
• Outreach to underserved and unbanked markets and
  populations.
• Identification of banking and development
• needs.

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Bank Decision Factors

• Assessment Area
• Risk
• Cost
• Response to assessed need
• Business/skill alignment
• Leverage
• Value to overall CRA strategy/portfolio
• Business development potential

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Public File for All Institutions

• Full file at the main office and at one office in
  each state
• Limited file at branch locations
• All written comments for the current year and two
  previous years
• Most recent public evaluation
• List of all branches - address and geographies
• List of services
• Map of Assessment Areas
• Last two years HMDA Disclosure Statement

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Resources

• FFIEC Community Reinvestment Act Page
• http//www.ffiec.gov/cra/
• FFIEC Guide to CRA Data Collection and Reporting
• http//www.ffiec.gov/cra/guide.htm
• FFIEC Guide to HMDA Reporting
• http//www.ffiec.gov/hmda/guide.htm
• Federal Reserve Bank CRA Guide
• http//www.dallasfed.org/ca/epersp/2007/4_2.cfm
• FFIEC CRA Q As 2009
• http//www.fdic.gov/news/news/press/2009/E8-31116.
  pdf

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Thank You

• John Eric Nelson, Managing Partner
• Wall Street Without Walls
• john.nelson_at_wallstreetwithoutwalls.com
• Janet Hamer
• Federal Reserve Bank of Atlanta
• Janet.hamer_at_atl.frb.org
• Kip Child
• FDIC
• kchild_at_fdic.gov