Revisions to regulatory guidance do not strip the bank branch of its importance for achieving CRA compliance, says Cleveland Fed
Still, regulators realize that bankers are serving communities increasingly in digital ways
At a time when US banks are closing hundreds of branches per year, financial institutions must continue to comply with the Community Reinvestment Act (CRA), which places importance on the full-service branch in gauging how well banks are ensuring the availability of credit and other services.
The Community Reinvestment Act was passed in 1977 to encourage banks to help meet the credit needs of their entire communities, including low- and moderate-income neighborhoods, in ways consistent with safe and sound bank operations. In July 2016, the three federal banking agencies with supervisory responsibility for the CRA issued updates to the Interagency Questions and Answers Regarding Community Reinvestment (Q&A), which provides guidance on the interpretation and application of the CRA.
In issuing these changes, the agencies—the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the FDIC—gave notice that they’d withdrawn proposed revisions that would have deleted the statement that “performance standards place primary emphasis on full-service branches.” They withdrew that revision, according to the notice, in order to avoid the unintended implication that branches are less important in providing financial services to low- and moderate-income neighborhoods.
At the same time, CRA evaluations are about “more than just branches,” says Michael J. Coleman, a banking supervisor for the corporate compliance risk team of the Federal Reserve Bank of Cleveland.
“It’s pretty well known that examiners are going to analyze where a bank’s branches are, but bank management can also provide additional information for consideration such as what alternative service methods are being utilized,” Coleman says. “Really, the question is, is access to banking products and services declining as the number of bank branches declines?” he says.
In assessing compliance with the CRA, examiners conduct lending, investment, and service tests. Lending, Coleman explains, is weighted the heaviest. The service test performance standards place primary emphasis on full-service branches while still considering alternative systems. The service test also considers an institution’s community development activities.
Federal Reserve Bank of Cleveland
The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.
The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.
Doug Campbell, email@example.com, 513.455.4479