Does it do the job?
On December 17, 2025, the Office of the Comptroller of the Currency (OCC) published proposed new guidance that is intended to streamline the process for a CRA-covered financial institution to obtain approval of a CRA strategic plan. Will the proposed changes have a significant impact on banks choosing the strategic plan option?
Background
Under the Community Reinvestment Act banks are required to demonstrate they are meeting the credit needs of the communities they serve. Typically, banks are examined under one of three different exam standards, (1) the small bank performance standards, (2) Intermediate-small bank performance standards or (3) large bank performance standards. There are also CRA performance standards for wholesale or limited purpose banks and banks that chose the strategic plan option.
The normal CRA performance standards dictate that all banks are subject to a “lending test”. Intermediate and Large banks are subject to community development tests too. These tests require (1) that a bank extend the majority of its CRA-measured activity within its defined communities, (2) meet market and community performance benchmarks in a “geographic dispersion test (lending in low- and moderate-income census tracts), and market and community benchmarks in a “borrower distribution” test (lending to low- or moderate-income borrowers or smaller businesses or farms).
The strategic plan option is intended to provide community banks that are working under atypical market conditions with the opportunity to modify the standard performance expectations to match the unique characteristics of the local markets which they serve.
Since its adoption in the 1995 Rule very few institutions have taken advantage of the strategic plan option. In its proposal the OCC states that only 14 OCC-regulated lenders currently operate under a CRA strategic plan and, according to the OCC, 12 of those banks were “non-traditional” (“banks with a business model that generally are not branch-based or do not focus on extending retail credit to consumers, small businesses, or small farms”). This means only 2 OCC-regulated banks would qualify as true community banks. Numbers for the Fed and the FDIC show similar low participation rates with only 8 Fed-supervised lenders operating under a strategic plan and 48 FDIC-regulated institutions evaluated under a CRA strategic plan in the last 5 years. Furthermore, in its proposal the OCC also indicates that since its adoption in November 1995 only 106 insured depository institutions have been evaluated subject to a CRA strategic plan. That’s an average of only a little more than 3 institutions evaluated annually under a CRA strategic plan.
It should be noted that the proposed simplified process is aimed at community banks, not large banks. The OCC states, “For larger, more sophisticated banks . . . the current guidance provides appropriate flexibility to customize their strategic plans . . .” But for community banks the agency claims there’s a “disconnect between the regulatory burden associated with developing a proposed strategic plan and perceived benefits.”
How does the simplified strategic plan process work?
Essentially, the agency is proposing a choice between what it calls “elective goals” and “custom goals”. The elective goals are based on the “OCC’s existing performance expectations”. The custom goals are “bank-specific, custom goals instead of, or in addition to, using the elective goals.” What this boils down to is the status quo with some modest changes.
The most significant change is with respect to the elective goals for which the agency explicitly lists different specific elective goals that a community bank could work with as follows:
· CD lending: the Agency lists and explains 12 different potential goals for satisfactory performance and another 12 different goals for outstanding performance. These range from using graduated percentages of Tier 1 capital or total assets to measure and rate performance.
· CD investment: the OCC again uses different potential goals for satisfactory and outstanding performance based on comparisons to Tier 1 capital. Appendix A lists 15 different measures and calibration points for satisfactory performance and 16 different options for outstanding performance.
· Combined CD lending and qualified CD investments: the Agency delineates 4 different calibration points for CD investments and another 4 calibration points for outstanding performance.
· Services: the OCC lists 2 different measures based on hours of service for satisfactory performance and higher levels of those 2 different measures for outstanding performance.
· Retail lending – Home mortgage, small business, small farm and consumer lending. The Agency identifies the same explicit performance tests, the geographic dispersion test and the borrower characteristics test, as used in a standard CRA performance exam, leaving the calibration points to the bank.
But what the agency gives with one hand, it takes back with the other hand. “The elective goals, however, are not safe harbors and their use would not guarantee approval of a strategic plan” which would be contingent on public engagement . . . and adjustments to address public comments”. Furthermore, the proposal states, “The OCC generally does not expect community banks' use of the simplified strategic plan process to result in reductions in CRA-qualifying activities as compared to the existing process.” But banks for which the CRA strategic plan option may be attractive are typically trying to justify either lower performance standards (certainly not higher standards) or different performance standards altogether. The OCC’s warning that it does not expect community banks to reduce performance standards when using the elective goals undoes much of the appeal of its proposal.
This really does not materially differ from the current strategic plan concept of loan volume adequacy, nor the standard CRA performance benchmarks and performance levels for the geographic and borrower characteristics tests. Essentially, the only real benefit in the proposal as presented is the delineation of explicit potential performance measurements.
Now, it turns out that a major goal of the Agency is to make it easier for community banks to develop a CRA strategic plan without relying on outside help. But developing a CRA strategic plan requires a very significant time commitment and most community bankers don’t have the time to research (1) the community’s needs, (2) how those needs are being met, (3) who is meeting those needs, (4) market demographics, (5) local credit market data, (6) draft a detailed plan, (7) interact with bank management, (8) present a draft of the plan to the public, (9) listen to and read public comments, (10) revise the plan, (11) present the revised plan to the OCC, (12) respond to questions from the OCC, (13) coordinate with senior management and the board, and (14) finish the final plan.
Conclusion
After 30 years of advising banks regarding their CRA responsibilities and having worked with several banks on CRA strategic plans, I believe the explicit electives delineated by the OCC are a positive development, but I don’t believe they will have much, if any impact on whether many community banks will choose to adopt a CRA strategic plan. While the explicit performance benchmarks for community development activities and loan volume adequacy are helpful, they are not materially different from the considerations of the last 30 years. There’s no way to avoid the significant time in researching and documenting community needs and how they are being met. Perhaps the explicit benchmarks and performance levels will encourage a handful of community banks to pursue a CRA strategic plan, but I wouldn’t be too surprised if no community bank adopts a CRA strategic plan without expert advice. This is a very esoteric area understood by only a small number of specialists. It will still be an intimidating project for all community banks who are already shorthanded and don’t have the people to spare to put in the significant time commitment to see a CRA strategic plan through what remains a time-consuming process.
The agency is to be complimented on this attempt to streamline the CRA strategic plan process. I certainly encourage community bankers to review the 18 questions posed by the agency and to offer comments. As the intended beneficiaries your thoughts will carry much weight. The deadline for comments is February 20, 2026.
An issue that needs to be addressed asap.
I also suggest that one area not addressed in the proposed guidance is the question of loan volume adequacy in the form of an elective benchmark rather than the conventional CRA Assessment Area Ratio test. Many banks in the past 20 years have developed market strategies far beyond their traditional CRA assessment areas and have funded that activity, not with traditional deposits, but with sales into the secondary markets. The original CRA assumes lending is a zero-sum game in which loans outside a bank’s defined community reduce the funds available within the community. That may have been true back in 1995, but with the advent and development of the secondary markets it no longer holds.
I have advised dozens of community banks that developed a regional or nationwide business model funded with sales into the secondary market for conforming mortgages and SBA-guaranteed loans. We have been able to convince examiners that CRA concentration ratios of far below 50% are not an accurate barometer of the adequacy of a bank’s lending within its assessment areas when the banks are selling the loans into the secondary markets. We have been able to document this by comparing the loan-to-deposit ratios of all depository institutions within any given assessment area. The agencies adopted a version of this approach using the “Retail Lending Screen Test” in the 2023 CRA rule. It was one of the good things in the 2023 rule that should be revisited as an alternative to the outdated Assessment Area Concentration Ratio. The AA Concentration Ratio is an outdated and misleading indicator of loan volume adequacy and should be addressed by the OCC and its sister agencies, the FDIC and the FRB.
