Regulatory relief was a major goal for the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency as they crafted the newly unveiled Community Reinvestment Act proposal.
The notice of proposed rulemaking, released July 31, would narrow and de-emphasize retail factors in Community Reinvestment Act (CRA) exams and focus exams primarily on lending products; raise asset thresholds for small, intermediate and large banks; and clarify community development activities.
During a call with the media, agency officials said reducing regulatory burden, particularly for community banks, was a key objective when crafting the proposal.
Retail factors
The proposal would narrow the definition of retail banking services to include only credit services and exclude deposit services. The proposal also seeks to narrow the scope of retail lending tests to only a bank's major products, such as consumer loans, mortgages, small business loans or farm loans, to better tailor evaluations.
"These changes would reduce regulatory burden for banks by tailoring the lending test to focus on the product lines that make up most of a bank's record of serving community credit needs, thus enabling banks to better focus their resources to more effectively manage their CRA programs," the proposal read.
The proposal comes about a year after the agencies rescinded a final CRA rule from 2023, which sought to expand the scope of retail factors but never took effect due to legal challenges. That rule was expected to make CRA exams tougher and hinder bank M&A.
Thresholds
The rulemaking proposes raising the threshold for banks subject to small bank CRA requirements to $1 billion from $412 million. The change would exempt more banks from the community development test, which evaluates a bank's community development loans, investments and services. Under current CRA guidelines, small banks are subject only to the lending test, and intermediate banks are subject to both the lending test and the community development test.
Under the proposal, over 750 more banks would be considered small banks, according to data from S&P Global Market Intelligence, based on year-end 2025 total assets for banks whose last CRA rating was issued by either the FDIC or the OCC.
The proposal also seeks to replace the current "intermediate small bank" category, which includes banks with assets between $412 million and $1.65 billion, with a new "intermediate bank" category for banks with assets between $1 billion and $10 billion in assets.
These banks would be able to achieve an overall "satisfactory" score more easily under the proposal.
Under current standards, intermediate banks can only receive an overall "satisfactory" rating if both its lending and community development tests reach that rank. Under the proposal, an intermediate bank would be able to achieve an overall "satisfactory" rating as long as it receives at least a "satisfactory" rating on the lending test, consistent with the agency's approach to focus more on lending services.
All other banks with more than $10 billion in assets would be considered large banks, up from the current threshold of above $1.65 billion. The number of banks considered intermediate banks would drop by about 385, while around 400 fewer banks would be considered large, based on Market Intelligence data.
Community development investments
The agencies are proposing major changes to what qualifies as a community development investment for intermediate and large banks subject to the community development evaluation. Under the proposal, only grants and donations that directly finance programs, projects and initiatives in a bank's local community would qualify for CRA consideration.
The agencies intend this change to ensure banks' funds go toward the communities they serve rather than "activist causes."
Banks with over $10 billion in assets would also be restricted to a 15% cap on the amount of funds the recipients can use on costs not associated with community development. In the proposal, the agencies cited an example where a bank received community development credit for a grant to an organization focused on providing housing counseling to low-to moderate-income individuals and healthcare to homeless individuals, where 25% of the funds went to internal expenses for the organization.
The agencies also intend to provide banks with greater clarity on what would receive consideration in the community development test by creating a publicly available list of activities that do and do not qualify and establishing a confirmation process for banks to seek approval for "novel" activities to qualify in their CRA examinations.
The definition of community development would maintain the four current categories of affordable housing, civic assistance for low- and moderate-income individuals, economic development, and revitalization and stabilization of targeted areas, but clarify them further.
For example, the affordable housing definition provides more flexibility for what multifamily loans would qualify for CRA consideration. The revitalization and stabilization category would include investments in Native American or Tribal lands under the proposal.
"For banks and other interested parties, the lack of clarity with respect to the meaning of community development has been one of the most prominent and consistent concerns with the current rules," the rule stated.
