BY KAREN TUCKER, NBE,
AND CALVIN R. HAGINS,
CRCM, CRP, AMLP
ccording To neWs rePorTs, THe econoMy is in recession,
foreclosures are up, and business results are down. And yet, in the midst of the
current economic climate, regulators continue to expect banks to comply with
the Community Reinvestment Act (CRA). Why?
CRA is a fundamental aspect of banking. Banks continue to have an
obligation to help meet the credit needs of their communities, consistent
with safe and sound banking practices. In fact, in the current economic climate, credit
and community development needs may have intensified in a bank’s assessment area.
Creditworthy borrowers like individuals, small businesses, and small farms continue to need
credit. Individuals and families need access to financial services. Nonprofit and community
organizations need access to funding and services.
Fortunately, the CRA regulation can and does accommodate changes in economic
conditions. Each bank’s unique performance context, including economic conditions, is part
of its CRA evaluation. Regulators must consider how a bank is helping to meet credit needs in
light of its capacity and constraints. Bankers should take the opportunity to discuss with their
regulators how the current economic climate has affected their bank’s capacity and constraints,
and thereby its ability to help meet credit needs. Regulators, in turn, will continue to follow the
CRA examination procedures and thoughtfully evaluate the bank’s CRA performance.
What then are the most pressing questions and concerns about CRA today? How can
banks ensure a continued strong lending test performance? What types of investments are
available now? Are there any new community development services opportunities? And
finally, what do examiners really expect?
This article covers some common issues and questions related to ensuring good CRA
performance in the current economic environment for all three parts of the large-bank CRA
examination: lending, investments, and services. However, it’s not intended to cover every issue
a bank may face during these times, and you should contact your primary regulator if needed.
Lending Test Issues
A bank should continue to make credit available to creditworthy borrowers, consistent
with safe and sound banking practices and the bank’s capacity and operating constraints.
However, some banks’ capacity to meet credit needs has changed. Credit needs in some
assessment areas have also changed.
While credit needs vary from community to community, there are some lending activities
that are likely to be responsive in helping to meet the credit needs of many communities,
particularly in the current economic climate. Here are two examples of activities that could
be discussed as part of the qualitative assessment of a bank’s lending performance:
■ establishing loan programs with the objective of providing affordable, sustainable, long-term relief—for example through loan refinancings, restructurings, or modifications—to
homeowners who are facing foreclosure on their primary residences
■ establishing loan programs that transition low- and moderate-income borrowers from
higher-cost loans to lower-cost loans provided the loans are made in a safe and sound
manner
A DELICATE
