CRA Lending Will Suffer If Capital Requirements Rise, Banks Argue

Capital requirements and new lending rules for small businesses could negatively affect banks’ ability to adequately serve their communities, banking groups have argued.

The Bank Policy Institute (BPI) and the American Bankers Association (ABA) argued in a joint letter that the planned new capital requirements for banks introduced as part of the Basel III rule implementation could restrict lending under the Community Reinvestment Act (CRA).

The trade bodies also argued that the Consumer Financial Protection Bureau’s (CFPB) planned rule on data reporting for small business lending could also negatively impact CRA-related lending including mortgages.

The argument is the latest attempt by banking groups to push back against the capital requirements and the data reporting rule, but the first time they have both been addressed at the same time.

In the letter, the BPI and ABA called for the postponement of any proposed changes to CRA rules while the Basel III rule is finalized, and while awaiting a ruling from the Supreme Court about the CFPB’s funding structure. The latter challenge has led to delays to the bureau’s Section 1071 rule governing the collection of data for small business loans.

“We do not believe that the agencies or the public fully understand the impacts that the proposed capital changes would have on banks’ CRA programs, which must be considered, both by the agencies and the public, before any new CRA rules are finalized,” the BPI and ABA wrote.

“The agencies should consider whether changes to the CRA proposal are warranted in light of the proposed changes to the capital rules, and, if so, the agencies must seek comment on any such changes.

“Should the agencies finalize the CRA rules before the capital rules are finalized, the agencies will not have provided the public with a meaningful opportunity to comment on the proposed CRA amendments in light of the changes banks are likely to make to their CRA programs due to revisions to the capital rules.”