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CRA and consolidation: Where should they meet?

Viewpoint series conclusion: Where is CRA headed?

This viewpoints article, part of a series, looks at the Community Reinvestment Act as it approaches its 40th anniversary. We welcome responses in the comment section below. Proposals for viewpoints articles and UNconventional Wisdom guest blogs should be directed to This viewpoints article, part of a series, looks at the Community Reinvestment Act as it approaches its 40th anniversary. We welcome responses in the comment section below. Proposals for viewpoints articles and UNconventional Wisdom guest blogs should be directed to [email protected]

Part 3: This series is based on a speech given by Sandra Braunstein, formerly of the Federal Reserve Board staff, at the Wolters Kluwer CRA and Fair Lending Colloquium in November 2015. It looks at the past, present, and potential future of the Community Reinvestment Act. For more about Braunstein, see the extended author's note at the end of this article. Part 1: "Looking at CRA afresh"

In the previous installment of this series, I discussed two elements of the challenge of the Community Reinvestment Act under modern conditions. First, I addressed the issue of whether CRA had become too complex in its operation. Then, I addressed a lack of consistency in CRA examination among the three prudential banking agencies. Now, in the final installment, I’d like to address, first, a new approach to large bank CRA, and finally, touch on where CRA should be headed.

Require pro forma post M&A CRA plans from all large institutions

As we know, the main enforcement mechanism for CRA comes during the application process.

A bank that wants to acquire or merge with another institution will have their record of meeting the convenience and needs of the community reviewed during the application process. That is also when consumer and community groups can weigh in and have some impact on the bank’s ability to consummate the proposed transaction. I know that almost all transactions are approved, regardless of comments filed by consumers and citizen groups.

However, those comments, when of substance, can substantially slow down the process and can trigger conversations between the bank and the regulators that might otherwise not happen.

Recently, the Comptroller’s Office has done something interesting. OCC has required some of its financial institution applicants, as a condition for approval of the merger or acquisition, to develop a CRA plan for the new entity. The plan must contain specific lending and investment goals for their assessment areas.

OCC has required that the institutions make these plans public on their web sites. This brings me to the third recommendation for consideration by the agencies.

In thinking of something that could impact the efficacy of CRA going forward, what if all the agencies made these public CRA plans a requirement of the application process for large institutions?

Before bankers reading my blog start groaning about increased regulatory requirements, let’s think this through.

When preparing to enter into the acquisition of or merger with another financial institution, bank management goes through a plethora of detail. Management goes through financial calculations and geographic/market share analyses, predictions of the economies of scale, potential product consolidation, optimal employee numbers, predictions of future income, stock prices, etc.

In other words, no organization would enter into a transaction of this magnitude without doing financial due diligence prior to submitting an application. So, why shouldn’t an institution also engage in an in-depth analysis of the new entity’s CRA program?  For example:

• What will the new assessment areas look like? 

• What is the new branch presence likely to be? 

• What products will the new organization offer, and what will be the main focus of their CRA efforts? 

• What is the infrastructure for the new entity’s CRA program? 

• What is the staffing level and what are the reporting lines? 

Why should this be any different than the due diligence that is done on the financial side? Based on what I have seen, there may be open-ended large promises made during an applications process, but they lack important details and information that is left to “be worked out later,” post-merger. CRA, in an applications process, is sometimes perceived by financial institutions as a potential stumbling block, not an integral part of the pre-acquisition internal analysis.

The conversation often is, “We want to submit an application. Are our CRA examination ratings good enough to get us through the application process, even if we are protested?”  Not, “We want to submit an application, and here’s our analysis of what our new CRA program will contain and achieve.” 

I am suggesting that the agencies consider requiring that internal analysis, and a public CRA plan be part of the application process. This requirement would increase bank transparency and accountability to the community and the regulators. And, it would increase certainty for the financial institution, in terms of meeting those approved goals, resulting in a passing rating on the next CRA exam and a more streamlined approval process for any future application activity.

Looking ahead

CRA is as important today as it was when it was enacted in 1977. For many consumers, this is a critical regulation that, along with other targeted programs, can result in increased availability of credit and financial services. Increased access can result in opportunities for affordable housing, small business development, job creation, and other critical banking services.

It is up to those of us in financial institutions, in consumer and community development groups, and in regulatory agencies to ensure that CRA is taken seriously and actually has an impact in communities and neighborhoods.

To do that, both regulators and bankers must be creative, think out of the box, and evolve our views of CRA in the 21st century.

Return to Part 1: "Looking at CRA afresh"

Read these other articles based on sessions from the Wolters Kluwer conference:

Fair banking on the rise

Justice heightens focus on fair lending

Sandra Braunstein

Sandra Braunstein is currently an independent consultant, providing advice and expertise on financial strategic initiatives, including compliance management, community development, and Community Reinvestment Act issues.

Braunstein was formerly Director of the Federal Reserve Board’s Division of Consumer and Community Affairs. She retired from the Federal Reserve in 2014 after near 27 years of service.

In that position she was principally responsible for the development and administration of Federal Reserve policies and functions related to consumer protection for financial services. The division was responsible for consumer compliance supervision and enforcement, and had oversight of the Federal Reserve System’s consumer compliance examinations of state member banks and consolidated supervision in bank holding companies.

Other supervisory responsibilities housed in the division included analysis of bank and bank holding company applications for consumer-related issues, and consumer complaint handling and response. Division staff also wrote, reviewed, and interpreted regulations for certain federal consumer protection laws, including the Community Reinvestment Act.

In addition, Braunstein administered outreach efforts to the financial services industry, state, local, and federal government officials, and consumer and community organizations. Some of these responsibilities were carried out through the System’s Community Development programs. Community Development staff, housed at the Board and in the Reserve Bank and branch offices, conducted community development activities and promoted increased access to capital and credit in underserved markets. Other division staff conducted research on consumer behaviors and tracked emerging issues to gain insight into their implications for policy of consumer financial services.

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