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Fed, Bank Regulators Disagree on Community Lending Standards

An official with the U.S. Federal Reserve said this week that bank regulators should pursue a  more nuanced approval to updating the community lending standards for banks, according to Reuters. 

Lael Brainard, Fed Governor, said that a new standard proposed by other U.S. banking regulators would fail to account for differences across communities across the nation. Brainard added the regulators should apply an additional test to larger banks. 

Reuters states the regulators are trying to update rules in the 1977 Community Reinvestment Act, which requires regulators to assess how well banks are serving the needs of lower-income areas. The rules were last updated in 1995.

The Fed shares responsibility for enforcing the Community Reinvestment Act with two other regulators: the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. 

According to Reuters, those two regulators proposed a rule update in December without the U.S. central bank’s support, which would establish a uniform standard to evaluate a banks’ effort to support lower-income communities. 

Brainard, however, is against a broad-based approved, saying it failed to capture differences in communities with different amounts of lower-income families. 

“Any comprehensive and uniform metric does have the risk of unintended consequences (and) of not being responsive to local community needs,” she said at an event in Washington.

She added the Fed is not feeling the same pressure to ultimately get all three agencies to agree on a consistent rule. 

“It’s extremely important to eventually find common ground,” she said. “It is so much more important, in my view, to get this done right than to get it done fast.”

According to the Fed, the agency supervises members banks for compliance with the Community Reinvestment Act. 

To achieve this, the Fed: 

  • examines state member banks to evaluate and rate their performance under the CRA;
  • considers banks' CRA performance in context with other supervisory information when analyzing applications for mergers, acquisitions, and branch openings; and
  • shares information about community development techniques with bankers and the public.

About Author: Mike Albanese

A graduate of the University of Alabama, Mike Albanese has worked for news publications since 2011 in Texas and Colorado. He has built a portfolio of more than 1,000 articles, covering city government, police and crime, business, sports, and is experienced in crafting engaging features and enterprise pieces. He spent time as the sports editor for the "Pilot Point Post-Signal," and has covered the DFW Metroplex for several years. He has also assisted with sports coverage and editing duties with the "Dallas Morning News" and "Denton Record-Chronicle" over the past several years.

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