The CRA NPR Comment Period Is Over — What Most Commenters Missed
The comment period on the FDIC and OCC CRA Notice of Proposed Rule Making is now over. Predictably, commenters from the banking community supported the proposal while community groups criticized it. By far the two biggest proposed changes were to bank size categories (small, intermediate, and large) and community development. Changes in bank size categories have implications for CRA performance standards and reporting. The proposed changes in community development provide a quantitative benchmark that is far below reported data. The NPR’s quantitative option is 0.625% of tier 1 capital for CD loans plus 0.625% for CD investments and grants (large banks), and 1.25% for intermediate banks. A study by GeoDataVision based on 2024 community development lending revealed that reported CD lending by OCC and FDIC regulated institutions for that year exceeded the CD lending threshold proposed in the NPR by more than $100 billion!
Only a small number of commenters submitted comments on the most far reaching impact of the proposed changes to the CRA regulations - mandated reporters.
For the year 2024 (the latest year for which CRA data is currently available) 565 institutions subject to OCC or FDIC examination reported activity. The agencies estimated in the NPR that only 86 institutions would be mandatory reporters if the NPR is adopted as proposed. This would have very serious consequences for the “market” data used by regulators to establish performance benchmarks for the “Geographic Distribution” and the “Borrower Characteristics” Tests for the thousands of banks subject to CRA responsibilities. The 2024 CRA data proves this conclusion.For 2024 the two most active small business lenders were JPMorgan Chase and American Express which together originated more than 4.5 million small businesses loans accounting for 53.3% of all such loans reported by 565 FDIC- and OCC-examined institutions. A review of the 2024 CRA data shows that both lenders had extreme results lending to “smaller business borrowers”. American Express had a smaller business borrower penetration rate of only 19.1% while JPMorgan exhibited a 75.8% penetration rate. Combined, the activity of only those two lenders grossly distorted the benchmarks. Including them, the market average small business borrower penetration rate was 54.3%. But excluding them the market penetration rate would have been 62.7%.Now, with only 86 reporting lenders the performance expectations for thousands of banks would be even more influenced by the activity of two mega-lenders. Does it make sense to primarily rely on only two lenders to establish the performance standards of thousands of community banks?
