Banking

Fed’s Powell sees opportunity for joint CRA overhaul

WASHINGTON — Federal Reserve Chair Jerome Powell said bank regulators are still aiming to write a joint rule reforming the Community Reinvestment Act, despite years of disagreements between the agencies on how to proceed.

The Office of the Comptroller of the Currency finalized a rule on its own in May that includes a new CRA scoring method and other reforms, but the Fed and other agencies declined to support the plan. However, a leadership change has buoyed hopes of an interagency framework.

“I think there is an opportunity for a harmonized rule among the agencies,” Powell said in a hearing Wednesday before the House Financial Services Committee. “We are engaged, have been engaged and continue to be engaged with the [Federal Deposit Insurance Corp.] and the OCC and we’re working on that very thing.”

The OCC under former Comptroller Joseph Otting aggressively sought to modernize the decades-old anti-redlining law but encountered sharp resistance. Some critics said a new scoring system could incentivize banks to focus on large CRA projects to earn credit, disadvantaging some communities. Though the rule became effective last year, banks will not have to comply until 2023.

“I think there is an opportunity for a harmonized [CRA] rule among the agencies,” Fed Chair Jerome Powell said in a hearing before the House Financial Services Committee.

Bloomberg News

The Fed released its own CRA reform outline in September. It asked for feedback on an alternative framework that would rely on existing data collection and reporting requirements, include separate retail and community development tests and retain an emphasis on physical branch locations in determining a bank’s CRA assessment area.

Many stakeholders have held out hope that the three agencies ultimately will formulate a joint plan. The Biden administration will be able to install its own comptroller, who many suspect could delay the effective date of the OCC’s rule indefinitely and work with the other regulators on a new proposal.

Powell emphasized that the regulators “are just getting started” on discussing a plan for reform, and declined to commit to a timeline.

“There will be a new comptroller, but nonetheless, we’re working on it,” he said. “And by the way, it will be one that has broad support among the community of intended beneficiaries, which was always the Fed’s test and my test for what it would take for the Fed to support reform of CRA.”

Community groups and several banking trade organizations — including the Bank Policy Institute and the Independent Community Bankers of America — have urged the banking agencies to work together on a uniform rule that would avoid confusion and a bifurcated framework.

Rep. Nydia Velazquez, D-N.Y., said she was “glad to hear” that the Fed would be working with the FDIC and the Comptroller’s Office on Community Reinvestment Act reform, “especially at this time when underserved communities … have been impacted by this pandemic, and CRA is a way to lift up communities of color.”

Lawmakers on both sides of the aisle have supported updating the 1977 anti-redlining law, noting the wider availability of digital and mobile banking services since the rule was last updated more than two decades ago.

At the core of the CRA are the geographic zones tied to a bank’s service market in which institutions are required to invest. Historically, those areas have been determined by where branches and ATMs are located.

“I appreciate your comment earlier today that you’re working with the OCC and FDIC to get on the same page,” Rep. Barry Loudermilk, R-Ga., told Powell. “As you know, the pandemic has accelerated the use of digital platforms, like mobile and online banking.”

Powell also for the first time endorsed legislation to ease the transition away from the beleaguered London interbank offered rate, or Libor.

While regulators have urged financial institutions to adopt a new reference rate such as the secured overnight financing rate, they acknowledge potential issues stemming from years of financial contracts referencing Libor that will remain in effect. Legislation could provide fallback language for contracts swapping in a new rate when Libor ends.

“As you know, many Libor contracts are going to run off before” 2023, “but there’ll be a hard tail, as we say, and we do think federal legislation is the best answer,” Powell said. “Federal legislation creating a path for a backup would be the best solution, we think.”

The ICE Benchmark Administration — a subsidiary of the Intercontinental Exchange that administers Libor — said in November that it would cease publication of its one-week and two-month Libor settings as planned on Dec. 31, 2021, but would extend the sunset dates of the remaining Libor settings to June 30, 2023.

“It’s almost disappointing to get a reprieve, and that it will reduce the pressure on us to actually solve this problem, but it does give us more time,” said Rep. Brad Sherman, D-Calif.



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