Question & Answer

Question: I am concerned about how our bank will perform under the new CRA regulation. We are a small bank (less than $250 million). We make less than 40 mortgage loans a year and we keep them in our portfolio. I am concerned that this number of loans will not be enough to pass the small bank test. What should we do to pass the new test?

Answer: First, congratulations on looking at this concern now. As you have already discovered, looking at this in December would be too late to do anything about it. You are right. If you rely on your mortgage portfolio alone, your bank may not appear to be an active lender in your community You probably have other loan products which show the bank in a stronger light. For example, many small banks have substantial consumer installment loan portfolios. However, if you want these loans to be considered, you must compile the required data on these loans. Also, you must put forward the entire portfolio for consideration; you can't select only a subset such as asking for consideration of used car loans instead of all car loans.

The extra work may be worth it. Many small banks find, when they analyze their portfolio, that they are active lenders to their low and moderate-income customers by making various types of car and other consumer installment loans.

Tip: Store income data on all of your TIP customers for all of your products. If you do this, it will enable you to periodically review your loan products to determine the extent of your lending to low and moderate-income customers. By storing this data and regularly reviewing it, you can be prepared to present your bank in the best light.

Analyze the location of your depositors. This information will help you delineate your community and may provide additional support for your delineation particularly if political or geographic boundaries are not appropriate. It may also be useful in understanding and defending your lending pattern.

Copyright © 1995 Compliance Action. Originally appeared in Compliance Action, Vol. 1, No. 1, 11/95