Bank Regulators Propose Overhaul of Lending Rules for Poorer Communities
12 December 2019 - 7:33PM
Dow Jones News
By Andrew Ackerman
WASHINGTON -- Federal banking regulators on Thursday proposed an
overhaul of rules governing how banks lend hundreds of billions of
dollars in low-income neighborhoods, a plan that is already
generating criticism from community groups.
The overhaul is a priority for Comptroller of the Currency
Joseph Otting, who says it will boost lending under the Community
Reinvestment Act and make existing requirements more transparent
and consistent. The act requires banks to serve borrowers of all
income levels in their communities.
Advocacy groups and some congressional Democrats are raising
objections to the plan, saying it could inadvertently curb lending
to poorer neighborhoods. Some bank lobbyists have privately
expressed concern the initiative will increase costs of compliance
with the act.
Mr. Otting dismissed those concerns. "If you don't like this,
you are either economically advantaged by the current structure or
you don't understand it," he said in an interview this week. In
discussions with major banks, "nine out of 10 are supportive of the
direction we're heading."
The plan is backed by a second regulator, the Federal Deposit
Insurance Corp., but not by the Federal Reserve. The Fed is
considering a separate overhaul, according to people familiar with
the central bank's thinking.
Officials at all three regulators say they hope they can
ultimately agree on a plan. "We worked very hard to try to get
aligned with the OCC on a proposal, and my hope is that we can
still do that," Fed Chairman Jerome Powell said Wednesday. "I don't
know whether that will be possible or not."
Friction over the proposal between the Fed and OCC has been
palpable behind the scenes. In November, Mr. Otting sent an email
to Fed governor Lael Brainard, who is leading Fed efforts on the
issue, saying the central bank was slow-walking the overhaul,
according to people familiar with the message. Fed officials
objected to that characterization and said the OCC was moving
forward with a plan that lacks analytical rigor, the people
said.
In an acknowledgment that the proposed framework could be costly
to banks, the OCC and FDIC said lenders with less than $500 million
in assets could opt out. That threshold would cover about
three-quarters of banks overseen by the FDIC, though the firms
generate a fraction of the roughly $480 billion in annual CRA
lending and investment.
Since its inception, regulators and Congress have turned the CRA
into an extensive public test evaluating how many loans, branches
and investments a bank has to serve the poor. Evaluations are based
on a complex formula that includes loans to home buyers and small
businesses and the number of branches in lower-income areas. Bad
grades can result in restrictions on bank mergers and other
activities.
The overhaul would more precisely define the types of lending
and other activities that qualify under the act and redefine the
geographic areas where they occur, known as assessment areas. If
successful, it would allow regulators to see more easily if lending
matches up with deposits.
Banks would still be required to lend in lower-income
neighborhoods near their branches, but under the new rules they
would also be examined based on areas where they have significant
deposits.
Mr. Otting, a former bank executive who has made overhauling the
regulations a top focus, once faced public pushback from community
groups in the midst of a merger between his former firm, OneWest
Bank, and CIT Group Inc.
The OCC and FDIC proposal will be subject to public comment
before it can be completed as early as next year.
Write to Andrew Ackerman at andrew.ackerman@wsj.com
(END) Dow Jones Newswires
December 12, 2019 14:18 ET (19:18 GMT)
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