OCC issues draft CRA Notice of Proposed Rule-Making to clarify 2020 Rule and adds a shocking potential rating downgrade on first exam under the new rule

Dear Banker,

On Wednesday, November 25, The Office of the Comptroller of the Currency issued a draft Notice of Proposed Rule Making regarding the new CRA Rule. In the NPR the Agency explains the data it will ask banks to report that will help the Agency formulate the benchmarks, thresholds, and minimums to be applied under the new CRA rule and that will correspond to the "presumptive ratings".

In the NPR the Agency announces that it will distribute an "Information Collection Survey" to obtain bank-specific information from banks subject to the general performance standards. The NPR delineates 4 types of data to be collected:

  1. Data on banks' main office presence, branch presence, deposit-taking facility presence, retail domestic deposit data at the county level, and the theoretical deposit-based assessment areas that would apply under the new rule
  2. Data on what would have been the quantified dollar value fo banks' CRA qualifying activities under the 2020 final rule to determine what banks' performance would have been under the CRAE evaluation measure under § 25.11 of the 2020 final rule and the CD minimum under § 25.13(c) and (d) of the final rule
  3. Data on retail loan applications and on what would have been the quantified dollar value of banks' CRA qualifying retail loan originations to determine the CRE evaluation measure under § 25.11 of the 2020 final rule.
  4. Data on banks' branch locations to determine what would have been the branch distribution component of the CRA evaluation measure under § 25.11 of the 2020 final rule

In the NPR the OCC comments, "the OCC anticipates that there may be as many as 26 different calibrated benchmark, threshold, and minimum values (emphasis added) under the general performance standards"! This is an indication of how comprehensive and complex the new rule is.

The Agency also clarifies and corrects certain items and definitions in the 2020 Rule.

We call to your attention an entirely new and shocking element in the NPR. The OCC is proposing that "a decline of 10% or greater in a bank's performance on the general performance standard as calculated based on historical data between the establishment of the objective benchmarks, thresholds, and minimums and the bank's first evaluation under the general performance standards . . . may warrant a downward adjustment in determining the bank's assigned rating." This should be something to express concern about. First, it is not clear at all how a 10% decline in performance will be measured. Second, since the benchmarks have not yet been established, even if the computations were explicit, it is impossible to know or understand how reasonable this standard is.

We suggest that OCC-regulated banks subject to the new general performance standards review and familiarize themselves with the proposed rule changes and make particular comments about the proposal regarding the potential rating downgrade.