New Community Reinvestment Act (CRA) Rule has big and different impact on OCC regulated institutions depending on asset size

The new Community Reinvestment Act (CRA) rule approved by the OCC on May 20, will have a very big impact on more than just the newly defined "large banks" (defined as having assets >$2.5 billion) who will be subject to the radically new performance tests (the "CRA Evaluation Test", the "Distribution Tests" and the "Community Development Minimum Test").

Some OCC-regulated lenders will get a very big benefit and some will get a very bad surprise depending on their asset size.

Under the new rule "small banks" will increase in asset size to include up to $600 million in assets in 4 of the 5 previous calendar quarters. This will be a very big break for banks that fall into the current "Intermediate-Small Bank" category whose asset size is from $326 million up to and including $600 million because they will have the elective to be examined as small banks under the new Rule and a big consequence of that is they will have no community development responsibilities for CRA examination purposes.

This is a huge break for the 172 OCC-regulated institutions that fall into that asset range because under the ISB examination standards community development activity is absolutely essential to passing your CRA exam. Effectively, it's an "all to nothing" (from an ISB where community development is absolutely essential to passing the CRA exam to a small bank where community development activity is not even required) situation for those banks - a huge break. The new rule goes into effect on October 20, after which banks can elect to be examined under the current rule or the new rule until the new rule becomes mandatory on January 1, 2024 for small banks and intermediate banks and January 1, 2023 for banks other than small, intermediate, wholesale and limited purpose. In this situation banks may want to be evaluated under the new rule for small banks.

On the other hand, there are some banks in for an unpleasant surprise. There are 69 OCC-regulated lenders who fall into the asset size range from $1.305 billion to $2.5 billion that will be considered as "Intermediate banks" under the new rule and will be subject to the Intermediate bank examination standards (the current ISB standards) that make community development activity an imperative to earn a "satisfactory" CRA performance rating. Once again, the new rule is effective October 20, 2020 after which banks can elect to be subject to the old rule or the new rule until the new rule becomes mandatory as explained above. In this case banks may choose to be evaluated under the current rule whereby they would be examined under the Large Bank standards which don't emphasize community development as much as the ISB standards.