Under the new Rural or “Distressed” designation, what are the criteria for banks to receive CRA credit in relation to CD lending in these designated tracts?
I was wondering if the activity still had to meet the $1,000,00.00 mark (and additional CD requirements) for CD lending like it does for large banks. For example; if we made a loan for a new restaurant (start up) for $750,000.00, as a “Large Bank” we would have to report this as a small business loan. Under the intermediate bank, if this activity was in one of the designated “Rural/Distressed” tracts, could we report this as a community development loan (if it met CD qualification other than $ amount)?

Also, has the FFIEC come out with the new Q & A of the 9/1/05 changes?

Thank you for you help!

From what I understand, even if you are a new ISB and not reporting CRA loan data, you still have to base your CD Lending off of the question "if you were a CRA reporter, would this loan have been reported as a small business loan?". If the answer is "yes" then you cannot count it as a CD loan.

Pray-Tell... What is the benefit to the rural-distressed designation? Is the only benefit an expantion of the LMI to include the distressed tracts? That's not much! Usually any activity that was CD worthy, we were able to identify a renewal community or HUB zone. There are actually more of those zoned areas in our AA than there are distressed tracts. As a matter of fact, all of the new distressed tracts are already zoned for renewal or HUB (in our area). The zone designation criteria is almost identical to the distressed criteria.
What have we gained with this?
Am I way off? Is there a fundamental principal that I am over-looking?
Please help me understand.
Thank you!

Personal opinion here Overloaded, so forgive me in advance.

I think a great deal of the benefit was already there (as you've mentioned) if you took any time to understand the regulation. I for one have been taking multi-family deals in middle income and high income tracts for years as CD (supposedly easier now in these rural distressed areas). It was just a matter of documenting them correctly. There are a lot of banks out there though that didn't document these types of deals correctly, so the new designation supposedly helps. I suppose they don't have to work so hard to find HUB zones, etc., As I've said, I've taken many a CD deal in middle and high income tracts so for me it was no biggie.

WHen it comes to the lending numbers it provides me with some support for low LMI lending (due to a lack of LMI tracts in rural Alaska). But this is just warm and fuzzy credit once again Something to support lower numbers in the geography area, but nothing concrete since it's primary goal was to increase CD lending. In fact, in my state it actually is a negative, because it encourages banks to focus on the easy places to do business (the rural-distressed tracts) verses the really hard places to do business, the LMI tracts that are remote. I mean if a bank can get as much credit for providing lending in the state capital (a rural distressed area) why go outside into the real arctic where the biggest need is?

Sounds like you aren't missing anything. You were already doing your job and looking to other ways to categorize these deals in the first place (hub zones, etc). Many many many!!! banks are too lazy to do this.

This is another example of how the revised regulation has been oversold to bankers. Another negative byproduct will be the increased expectations for CD activity because of the advent of the new rural distressed and underserved tracts. The fact that there are more areas qualified for CD activity means there are more "CD opportunities" which will ratchet up the standards. This is another reason not to give up your large bank status, - the ISB's will be more at risk because they must pass the CD test whose standards will be more demanding. Keep collecting and reporting your data as you have done since 1995. I wouldn't want to be the CRA officer of an ISB that gets a less than satisfactory PE after 10 years of satisfactory PE's as a large bank. The new rural areas only make it more difficult.

I participated in the FDIC phone seminar today in Chicago region and after reading the current posts in CRA Forum, I confirmed that we can choose to be examined as a large bank if we want, which I believe I may end up doing, but I did ask another question that makes me rethink that. In the new regs for ISB's, they state that "innovativeness and complexity" are not factors in the CD test for ISBs. I posed this question to them ... As a community bank in an affluent area with only 2 tracts in low-mod income, we have always struggled in Investment test with finding innvoative opportunities. We are also a very philanthropic bank who shells out hundreds of thousands each year in straight donations, a portion which are targeted to organizations which benefit low-mod income individuals and families. And while I document everything and get perfunctory credit for this, it is always overshadowed by the smaller amount of "qualified investments", which to me is a shame, especially since for many of us, to satisfy the examiners, we end up purchasing mortgage-backed securities or purchase a CD from a CRA-bank, all of which does a helluva lot less for our community that donations.

So I asked if an ISB bank would get more consideration for straight donations since complexity and innovativeness are not a factor, and they responded a resounding "yes" - although I am skeptical of that response.

Thank you all for your help.
Do you know if the $ amount criteria has remained the same, as with my example above?
My biggest problem is getting lenders to understand CRA activities. I'm sure I'm not alone...! There has already been talk amoung the lender of how easy CRA will be if they can claim all of their business loans that are located in these "distressed" area.
If the $1,000,000 has not changed, this will be something that I will enjoy letting them know. Not easy street.

I've seen nothing to tell me that the dollar amount threashold changed Overloaded.

Dave, I'm hearing the same thing, and frankly, that lack of focus on innovative and flexible is a big bonus to banks like yours. If I could just go out and purchase a boatload of mortgage back securities I'd be in heaven Since quantity is the focus, not quality (innovative/flexible) it sounds like a great change for your bank.

Cub Dave - I think the removal of innovativeness, flexibility and complexity factors actually hurts ISB's and does not help them. My reasoning is that these were considered qualitative factors and, in the case of the OCC for example, these factors could only be "neutral or positive" (see examiners guidebook which states "innovative or flexible lending programs will have only a neutral or positive impact on overall lending test conclusions). Moreover, if you read the description of the impact of innovativeness or complexity on the investment test it is obvious the intent is to give credit for CD investments that may not be large in value but reflect the bank's "leadership role in developing community development opportunities". In other words, the lack of innovative or flexible or complex products could never hurt. On the contrary, innovativeness or flexibility or complexity could only help a CRA PE So removing these factors from consideration cannot help an ISB. But Large Banks will continue to benefit from these factors because they can only help their PE. IMO this is another reason for ISB's to retain their large bank status.