The exception that makes the rule (About the rules)

The history of Eakinomics is filled with regulatory missteps, regulatory follies, and a paperwork-festooned economy. Every now and then, however, a surprise pops up. The Community Reinvestment Act (CRA) of 1977 was intended to prevent banks from discriminating against people in low-income areas. As Thomas Wade explained last week, the three regulators that oversee the ARC – the Federal Reserve (Fed), the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) – published a regulatory proposal that modernizes the CRA.

It was time. As Thomas Wade puts it: “The ARC has not been significantly updated since its implementation and does not reflect the development of online banking at all (as written in the origin, the CRA did not even take into account between states banking). As banks expand their range of internet banking services, CRA is becoming more redundant – and this redundancy is actually hurting some banks, like Ally, that operate solely online. Even today, banks are judged on the services they provide to vulnerable populations within a given “assessment zone,” the geographic region around a physical branch.

There are three main reasons for the reform. First, the CRA currently relies on service agents with physical locations, such as branches and ATMs. Therefore, the CRA assessment excludes online loans. Ally – the only fully online bank in the United States – receives no credit for Fair Loans in Detroit, where it is headquartered.

Second, the CRA does not take into account the size of a bank. It only looks at the raw number and value of loans to low- and middle-income customers, producing a completely unfair comparison between global giants and community banks.

Finally, the evaluation itself is poorly defined. It’s based on interviews, doesn’t use any metrics, and banks have no real reason to understand vague and indefinite ratings (“excellent”, “substantial”).

Two of the main objectives of the proposed rule are to update the approach to assessment domains and revise the framework for assessing banks. There would also be new record keeping, data collection and disclosure requirements. The proposal would augment the brick-and-mortar approach by allowing large banks to identify areas where they had “an annual lending volume of at least 100 home mortgages or at least 250 small business loans in a geographical area for two consecutive years. . The proposal also includes a nationwide assessment that would allow banks to receive ARC credit for any qualifying community development activity, regardless of location.

There is also a new categorization of banks: “Existing and new tests will be categorized into four new groups – a retail lending test, a retail services and products test, a community development finance test and a community development services. Large banks will be assessed on all four tests. Intermediary banks would be assessed only against the retail lending test and the pre-existing community development test. Smaller banks would be assessed solely on the pre-existing community development test.

The new CRA rule is a long overdue step in a modern direction and will be subject to public comment. We can be sure that these comments will prove that it is not perfect. The most obvious criticism is that the proposal will center on new, intensive and costly data collection, recording and disclosure requirements. Even this positive development for the CRA does not seem to be able to eliminate this bureaucracy.

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