Now that a Texas court has issued a temporary injunction delaying the April 1, 2024, scheduled implementation of the new CRA Rule should bankers relax and assume that the new rule’s effective date has been delayed for at least another year at the earliest? Maybe, but maybe not!

A key goal of the new rule as announced by FDIC Chairman Gruenberg was to “raise the bar” to pass a CRA exam. The regulators accomplished this in several ways in the new CRA Rule. The most significant means of raising the performance standards was the implementation of formal calibrated benchmarks.

Ever since CRA performance was quantified in the 1995 revisions to the regulation everyone has known that bank performance under the “Lending Test” was measured in comparison to “peer” data and community demographics. These benchmarks were based on CRA- and HMDA-reported lending in assessment area low- and moderate-income census tracts and on “borrower characteristics” (low- and moderate-income mortgage borrowers and small businesses with $1 million or less gross annual revenue).

But these reference points notwithstanding, no one knew exactly how a bank’s “penetration rates” under the geographic and borrower distribution tests had to compare to the benchmarks. No formal declaration of “calibrated benchmarks” had been adopted and announced by the regulators except the OCC’s brief 2020 CRA rule that was rescinded the following year.

Consequently, the regulators do have the option to implement the new calibrated benchmarks unofficially and without public announcement. All the agencies would need to do is to instruct the examiners to use the calibrated benchmarks in their 2024 and later CRA examinations. No one outside the agencies would be the wiser since there would be no official published standard.

In fact, it’s possible that examiners may already be using the unofficial calibrated standards. The percentage of banks receiving a “Needs to Improve” CRA performance rating for exams dated 2023 jumped precipitously from 1.25% during 2022 to 2.38% during 2023 (from 14 to 23). That’s the highest percentage of banks to receive a NTI since 2011 as the country was emerging from the “Great Recession” of 2008.

So, the result of the CRA litigation may not prevent the regulators from “raising the bar” for CRA examination standards - without the controversy and the litigation.

We recommend banks anticipate that the calibrated benchmarks may be stealthily implemented. A bank should identify the benchmarks in its assessment areas and compare its performance to those standards (calibrated using 80% and 60% “multipliers” for market and community standards respectively for “low satisfactory” ratings).

GeoDataVision has developed tables for every county in the country for that purpose with the calibrated standards pre-calculated. Lots of banks have been using the data to estimate how their performance may look using the calibrated standards. So it’s possible to estimate how you may be affected by the calibrated performance standards if they are officially or unofficially put into practice.