By: Edward R. Milhorn, Compliance Consulting Director
The OCC’s advanced notice of proposed rulemaking (“ANPR”) issued in August 2019 indicated that the updated approach to Community Reinvestment Act (“CRA”) performance evaluations “could include updated metrics that take into account information on a bank’s performance context, such as the demographic characteristics and the economic and financial conditions of specific communities.” With potential reforms to the CRA on the horizon that will increase the focus on the use of quantitative metrics to assign CRA ratings, defining a performance context becomes increasingly more important.
Part 345.21(b) of the CRA Regulation defines the performance context as “a broad range of economic, demographic, and institution- and community-specific information that an examiner reviews to understand the context in which an institution’s record of performance will be evaluated.” Even though the definition may seem relatively straightforward, the reality is that many bankers and examiners still struggle with a clear way to understand and contextualize a bank’s performance. With that being said, regulators understand that every financial institution is different, so they will consider the demographic, economic, and business factors that impact each institution. Although examiners may develop a performance context for you, each institution has an equal opportunity to develop its own performance context that it can present to examiners during performance evaluations.
From our experience, those institutions that develop their own performance context not only have a better grasp on their CRA performance, but they also tend to receive better CRA Performance Ratings. With that said, while the analysis is not intended to be an exhaustive assessment of community credit needs, it is designed to provide a research‐based narrative describing the environment in which the bank conducts its CRA activities. In addition to a bank’s specific profile information, such as asset size, product and service offerings and past CRA performance, at a minimum, a bank’s performance context may consider any or all of the following questions:
- How does the bank assess community needs and identify community development opportunities?
- What type of credit products does the bank offer to meet the needs of first-time homebuyers, credit‐impaired borrowers and small business customers? Are any of these products considered innovative or particularly responsive to local economic needs and conditions?
- What type of outreach does the bank do to reach small business segments and underserved communities?
- What is the bank’s role in housing or community development programs in the market?
- Has the bank taken a leadership role in terms of investing or service hours?
- What does the bank consider to be the most high‐impact projects in its community development portfolio?
- Is the bank supporting alternative financing sources, such as CDFIs?
- What is the bank doing to address revitalization/stabilization in the community?
- What is the bank doing to promote access to banking for underserved consumers?
- Has the bank developed new products or mechanisms for delivery services?
- What metrics does the bank gather to show the impact of alternative delivery services in meeting the needs of LMI consumers?
- Who are the bank’s competitors? What are they doing for CRA and how are they doing it?
Before developing your institution’s performance context, it is important to note that each regulatory agency that conducts CRA exams (the OCC, FDIC, and Federal Reserve Board) has a slightly different approach to understanding your performance context. Before developing your institution’s performance context, we strongly recommend that you consult information provided by your specific regulator to ensure that you define your institution’s performance context according to your regulator’s expectations.