➤ Comptroller of the Currency Joseph Otting said a Community Reinvestment Act update is long overdue.
➤ Certain types of activities that previously received CRA credit no longer will because they don't actually benefit low-income communities, he said.
➤ Otting said the proposal will increase the amount of assessment areas across the country.
The OCC's leader, Joseph Otting, sat down with S&P Global Market Intelligence ahead of the proposed rule's introduction. The following is an edited transcript of that conversation.
S&P Global Market Intelligence: Why is this CRA modernization effort necessary now, in your eyes?
Joseph Otting, Comptroller of the Currency
Joseph Otting: When I was given the opportunity to come to Washington and be the comptroller, one of the key initiatives that I felt was important was that if you could solve those items — what qualifies [for CRA credit], where it qualifies, how you measure it, and what is the reporting — that many more dollars could flow to communities and neighborhoods across America that were in need of proceeds.
And as we began this journey, really, in November of 2017 and started talking to people about what is going on and where are the needs and [asking] "What do you know about CRA?" it just reinforced my viewpoint about those items. When you say "now," I would say the clock has run out on this, that it should have been done so many more years previously.
There's a lot of former regulators who have gone to communities and have heard this. The [advanced notice of proposed rulemaking] that we produced showed that 92% of the people said it didn't work; it was broken; it was inconsistent; they didn't understand it.
And so I don't say, "Why now?" I say, "Why haven't we done it before?" It's somewhat embarrassing that we, as agencies, have allowed this to go on as long as it has. And I really think it's hurt communities in America because capital and lending hasn't flowed into communities.
How would this proposal incentivize banks to do more for low-to-moderate-income communities?
Otting: First of all, for the first time ever in the [rule's] history, an identifying list of what qualifies for CRA [credit is included]. And in the foundation of that is, you might do low-income housing, but if it doesn't have low-to-moderate-income people that are occupying that, in a low-to-moderate-income neighborhood, then [you are] not going to get credit for it.
And so I think where there have been some negative lines early on by people when we didn't even have a proposal out [saying] that the OCC and others are walking away from low-to-moderate-income [communities], quite frankly, it couldn't be more untrue. Because we have, I think, closed the loopholes where people perhaps get credit for activities that didn't support moderate-income [areas] and actually now have, I think, been [able to] unleash more capital and lending to support low- and moderate-income [neighborhoods].
What would a bank have to do now to get an "outstanding" rating?
Otting: It’s important to understand how we look at the measurement side. ... We do feel that the proposal will increase the number of the assessment areas across America, which I think is positive because then banks will get credit for the activities that they do currently in markets across America that aren't part of their assessment areas. But within those assessment areas, there's a two-pronged test: There's the unit test, and there's the dollar test.
The dollar test at the individual assessment area is, "What [are] your CRA-qualified activities in relationship to your deposits?" And then there's the unit test that says, basically, "How much is that [low-to-moderate-income] activity in the market, and what are you doing?"
Then there's the top-of-the-bank test, which takes the total qualified CRA activities divided by their deposits. And then that produces a percentage. And so what we've been working on is we've gone and tried to proxy a number from the financial institutions of what are acceptable percentage levels.
We put that in the [proposed rule] saying, "We think these are close approximations of what the numbers should be." And then we'll seek comment from the communities and financial institutions, [asking,] "Do those numbers seem to be right?" And we share in the [proposed rule] about how we got to those numbers with some data, so people can understand how we got to that information.
There was some pushback on the "one-ratio" idea early on; it looks like the agencies have backed off from that.
Otting: I would like somebody to point out to me the "one ratio." When somebody makes that an issue and then gets 300 people to sign a form letter to come in to contest and make [it] an issue, I'm not sure that people understood what the measurement was.
Even in the [proposed rule], we asked questions about using various measurements. It was never a proposal. And so [it was] a rallying cry by people who don't support modernization in CRA to find pieces and then dramatize those.
And so if you look at today, what we have said is: "We have measurements that are two-fold at every assessment area. And we have a measurement at the top of the institution." That's probably, for the average bank, 40 to 50 measurements. So I would love to have anybody explain to me how that's the one ratio.