OTS Chimes in on CRA

From the first CRA regulations in the late 1970's to recent years, the bank regulatory agencies have acted together, issuing uniform CRA regulations, guidelines and examination procedures. This maintained, at least in theory, a level playing field between institutions with different regulators. It also simplified, in theory, management of a CRA program for a holding company having financial institutions under different regulators.

The era of CRA uniformity may be coming to an end. The OTS has issued a final rule that alters the way the three tests are applied to large institutions. There is no indication that the other agencies will take similar action. In fact, the OTS supports the revised scoring option by the fact that savings institutions or thrifts must maintain significantly more assets in mortgage loans than must banks. This can make the investment test difficult to meet.

The OTS rule functions a bit like a strategic plan but with less analysis, documentation, and justification. Essentially, OTS will allow a thrift to allocate some of the emphasis on lending that would otherwise have been placed on investments and service. The rule allows thrifts flexibility in changing the emphasis but does require thrifts to justify any change. For example, a thrift asking OTS to place emphasis on lending rather than on community development investments must be prepared to show that investment opportunities are limited and/or that the thrift is better able to meet demonstrable credit needs.

As a practical matter, this rule, together with several of the elements out on proposal, would bring some portion of process back into the formula.

The OTS did not take final action on the issues contained in the recent FDIC, OCC, and FRB proposals.

Copyright © 2005 Compliance Action. Originally appeared in Compliance Action, Vol. 9, No. 3, 3/05