The CRA Rating Game

In her speech to the audience at the BAI/FDIC Community Development Lending Conference, Donna Tanoue, Chairman of the FDIC, discussed the current CRA rating system and her concerns about how it is working.

To clarify her discussion, she described a bank as "Outstanding" if it "sets itself apart from other lenders." She used the broader term "lenders" instead of "financial institutions."

Tanoue referred to conversations she has had with bankers - primarily small banks - in which the bankers have indicated that it is too difficult to get an Outstanding rating. They have, instead, aimed at a Satisfactory. According to Tanoue, that is "unfortunate." "To the extent that banks strive for a Satisfactory, rather than an Outstanding, community reinvestment is diminished."

The primary difference, for a small bank, between Satisfactory and Outstanding, is the investment test. Tanoue reminded that small banks can use the investment test to bolster their ratings, but it is up to them to request it.

Since the investment test can be so important in the rating - and since Tanoue encourages banks to strive for an Outstanding rating - she explained her views on why there is an investment test. Many of the low- and moderate-income areas lack capital that is necessary for safe and sound lending. The investment test encourages banks to use a variety of methods to help provide that capital.

Copyright © 2000 Compliance Action. Originally appeared in Compliance Action, Vol. 5, No. 7, 7/00