What are the posible penalties for a bad CRA examination?

Restrictions on branching, acquisitions, and mergers.

ENFORCEMENT

"Corporate leverage"
Rating considered when evaluating:
> applications for branches
> office relocations
> mergers
> consolidations
>purchase and assumption transactions

May deny or condition applications based on CRA rating.

Also, the bank must make periodic (usually quarterly) reports to the regulator on improvements against a plan developed to correct the poor performance.

Thanks to all

Here's the section of Reg. BB that addresses the impact of CRA ratings on certain applicatons.
http://www.bankersonline.com/regs/228/228-29.html

and 1st and 2nd step stock offerings.

And turning the CRA officer's life into a living h3ll.

That, too.

I've seen this question a couple of times now in the last month or so. There are a few potential penalties relating to CRA, but not as many as you might think.

First, a bank rated less than Satisfactory must include in its public file, a description of its current efforts to improve its performance. That description must be updated quarterly. This might be addressed in a Matter Requiring Attention in a report of examination, but failure to raise performance to at least Satisfactory carries no penalty, per se. This could theoretically go on ad infinitum, or nauseum, depending your point of view, and depending on if your bank has corporate aspirations.

If your bank desires to be corporately active, i.e., wants to branch, merge, or do any of those other things that require you to apply to your friendly regulator for approval, then your CRA performance comes under a little more regulatory scrutiny, as CRA requires the regulators to consider a bank's CRA performance in such matters. So, the second penalty is that regulators can deny or conditionally approve an application in the face of poor performance. Conditional approvals will extract some bank commitment to take some specific steps to improve its CRA performance. If you don't apply for any corporate actions, this won't come into play. You can effectively thumb your nose at CRA, if you choose, although that's not something I advocate, as it can invoke the third penalty.

The third penalty comes from reputational risk. With the CRA rating being public, it's possible that customers will decide not to do business with you because of your CRA rating. Community groups or news outlets could drag your bank's name through the dirt, drawing more public attention to your performance, thus besmirching your bank's name and reputation. Some states have laws prohibiting banks with less than Satisfactory ratings from holding public deposits, too.

Beyond that, there aren't any other penalties. Congress specifically prohibited the federal banking regulators from using their usual arsenal of enforcement actions in CRA matters, like cease & desist orders, formal agreements, civil money penalties, etc. So, enforcement is simply through the corporate leverage and the reputational risk. AR.

Of course, the banks posting here are in the category of wants to branch, merge etc or they wouldn't be concerned! Those who don't care aren't looking here for CRA guidance.

I have seen a very small Philadelphia bank and one in Baltimore that haven't had satisfactory ratings for many years. Perhaps if they ever want to sell the bank, it would be an improvement and community groups would like it and regulators would be relieved. Who knows?

I worked at a large Philadelphia bank that always had an outstanding CRA rating. They were truly committed. The community groups protested the sale to an out of state bank because the bank did so much for the community. The merger approval was extended for additional hearings.

A fund for specific cities in the bank's area was established and still goes on through successive mergers.