Community banks and rural development: research relating to proposals to revise the regulations that implement the Community Reinvestment Act

Since 1977, the Community Reinvestment Act (CRA) has required that federally insured banking institutions be evaluated on their records of helping to meet the credit needs of their local communities. In 1995, the agencies responsible for bank supervision substantially revised the regulations that implement the CRA. The revisions were intended to emphasize performance rather than process, to reduce unnecessary regulatory burden, and to increase consistency in CRA evaluations. Since 1995, "large" institutions, generally those with assets of $250 million or more, have been evaluated under a three-part test, whereas "small" institutions, generally those with assets of less than $250 million, have been subject to comparatively streamlined evaluations. ; In 2004 and 2005, the agencies put forth several proposals to extend the eligibility for streamlined examinations and an exemption from data reporting to more institutions by raising the asset-size threshold from $250 million to $500 million or $1 billion. A related issue that the agencies raised was how to define which bank activities in rural areas should be considered community development in CRA evaluations. In this article, the authors, having evaluated data to gain insight into the potential effects of these proposals, report the findings of their research.