[Federal Register Volume 71, Number 47 (Friday, March 10, 2006)]
[Notices]
[Pages 12424-12434]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-2188]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

[Docket No. 06-03]

FEDERAL RESERVE SYSTEM

[Docket No. OP-1240]

FEDERAL DEPOSIT INSURANCE CORPORATION

[RIN 3064-AC97]


Community Reinvestment Act; Interagency Questions and Answers 
Regarding Community Reinvestment; Notice

AGENCIES: Office of the Comptroller of the Currency, Treasury (OCC); 
Board of Governors of the Federal Reserve

[[Page 12425]]

System (Board); Federal Deposit Insurance Corporation (FDIC).

ACTION: Notice.

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SUMMARY: The OCC, Board, and FDIC (collectively, ``the Agencies'') are 
publishing revised guidance (Questions and Answers) relating to the 
Community Reinvestment Act (``the Act'' or ``CRA''). The Questions and 
Answers primarily addresses topics included in the revisions that the 
Agencies made to their CRA regulations, which became effective 
September 1, 2005.

DATES: Effecticve Date: March 10, 2006.

FOR FURTHER INFORMATION CONTACT: OCC: Margaret Hesse, Special Counsel, 
Community and Consumer Law Division, (202) 874-5750; or Karen Tucker, 
National Bank Examiner, Compliance Policy Division, (202) 874-4428, 
Office of the Comptroller of the Currency, 250 E Street, SW., 
Washington, DC 20219.
    Board: Anjanette M. Kichline, Supervisory Consumer Financial 
Services Analyst, (202) 785-6054; Catherine M.J. Gates, Senior 
Supervisory Consumer Financial Services Analyst, (202) 452-3946; 
Kathleen C. Ryan, Counsel, (202) 452-3667; or Dan S. Sokolov, Counsel, 
(202) 452-2412, Division of Consumer and Community Affairs, Board of 
Governors of the Federal Reserve System, 20th Street and Constitution 
Avenue, NW., Washington, DC 20551.
    FDIC: Pamela Freeman, Policy Analyst, (202) 898-6568, CRA and Fair 
Lending Policy Section, Division of Supervision and Consumer 
Protection; or Susan van den Toorn, Counsel, Legal Division, (202) 898-
8707, Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429.

SUPPLEMENTARY INFORMATION:
Background
    On August 2, 2005, the OCC, Board, and FDIC published in the 
Federal Register a joint final rule revising their Community 
Reinvestment Act regulations (70 FR 44256). The joint final rule became 
effective September 1, 2005.
    The joint final rule addressed regulatory burden on banks with 
assets between $250 million and $1 billion by exempting them from CRA 
loan data collection and reporting obligations. It also made such 
banks, called intermediate small banks, eligible for evaluation under 
the small bank lending test and a flexible new community development 
test, rather than the lending, investment and service tests that are 
used to evaluate larger banks. Holding company affiliation is no longer 
a factor in determining which CRA evaluation standards apply to a bank.
    The joint final rule also revised the term ``community 
development'' to include banks' activities that revitalize or stabilize 
designated distressed or underserved nonmetropolitan middle-income 
areas or designated disaster areas. Finally, the rule addressed the 
impact on a bank's CRA rating of evidence of discrimination or other 
credit practices that violate an applicable law, rule, or regulation.
    To help financial institutions meet their responsibilities under 
the CRA and to increase public understanding of the CRA regulations, 
the staffs of the OCC, Board, FDIC, and Office of Thrift Supervision 
have previously published answers to the most frequently asked 
questions about the community reinvestment regulations of the four 
Federal financial regulatory agencies. This guidance has been intended 
to provide informal staff guidance for use by examiners and other 
agency personnel, financial institutions, and the public, and is 
supplemented periodically. The four agencies' Interagency Questions and 
Answers Regarding Community Reinvestment (2001 Interagency Questions 
and Answers) were last published July 12, 2001 (65 FR 36620).
    On November 10, 2005, the staffs of the OCC, Board, and FDIC 
jointly published for comment in the Federal Register proposed 
Questions and Answers to provide additional guidance specific to the 
new OCC, Board, and FDIC rules issued on August 2, 2005, that apply to 
their institutions. (Because the OTS's CRA regulation varies from the 
OCC's, Board's, and FDIC's CRA regulations, the proposed Questions and 
Answers were not, and this final guidance is not, applicable to thrifts 
regulated by OTS.)
    In response to the Agencies' request for comment on the proposed 
Questions and Answers, the OCC received 193 letters, the Board received 
182 letters, and the FDIC received 183 letters. Most commenters 
submitted letters to all three Agencies. Comment letters were submitted 
by community organizations, individuals, banks and financial 
institution trade organizations, and state and local governments.
    The Agencies carefully considered the comments received. As 
discussed below, some of the proposed questions and answers have been 
revised in this final guidance to address suggestions by commenters, 
while other questions and answers are being adopted as proposed.
    The Questions and Answers that are being adopted today are grouped 
by the provision of the CRA regulations that they discuss, are 
presented in the same order as the regulatory provisions, and employ 
the same abbreviated method to cite to the regulations. For example, 
the small bank performance standards for national banks appear at 12 
CFR 25.26; for Federal Reserve System member banks supervised by the 
Board, they appear at 12 CFR 228.26; and for nonmember state banks, at 
12 CFR 345.26. Accordingly, the citation in this document would be to 
Sec.  ----.26. Each question is numbered using a system that consists 
of the regulatory citation (as described above) and a number, connected 
by a dash. For example, the first question addressing Sec.  --
--.12(g)(4) would be identified as Sec.  ----.12(g)(4)-1.
    As a result of technical changes made to the Agencies' regulations 
(70 FR 15570 (March 28, 2005)) and the substantive regulatory revisions 
mentioned above (70 FR 44256 (August 2, 2005)), some of the citation 
numbering in the 2001 Interagency Questions and Answers does not 
correspond to the current section citations of the revised regulations. 
In this final guidance, if a reference is made to guidance in the 2001 
Interagency Questions and Answers, the number of the question and 
answer, as published in the 2001 Interagency Questions and Answers, is 
given, even if that reference does not reflect the current regulatory 
citation. The Agencies' staffs are working to update the 2001 
Interagency Questions and Answers to reflect the revisions to the 
regulations made by the three Agencies, as discussed above, and will 
correct the citation references in the next publication of the 
Interagency Questions and Answers. When the 2001 Interagency Questions 
and Answers document is revised and republished later this year, the 
Agencies will publish an integrated document containing the questions 
and answers that are being published in this final guidance and the 
revised 2001 interagency guidance.

Discussion of Final Guidance and Comments Received

    All of the questions and answers that were proposed in November are 
being adopted today, either as proposed or with revisions. In addition, 
one of the proposed questions and answers (Sec.  ----.12(g)(4)(iii)-3) 
has been divided into two questions and answers for purposes of 
clarity.
    Sec.  ----.12(g)(4)-1:
    This proposed question and answer stated that the new definition of 
``community development'' applies to all banks, and not to intermediate 
small banks only. The Agencies received very

[[Page 12426]]

few comments on this proposed question and answer; all commenters were 
in agreement with the proposed guidance. The guidance is adopted as 
proposed.
    Sec.  ----.12(g)(4)-2:
    This proposed question and answer addressed whether activities that 
provide housing for middle- and upper-income individuals may qualify 
for favorable consideration as community development activities when 
they help to revitalize or stabilize designated disaster areas or 
designated distressed or underserved nonmetropolitan middle-income 
geographies. The Agencies received comments primarily from 
representatives of community organizations in connection with this 
guidance. These commenters opposed aspects of the proposed guidance. 
Commenters asserted that projects that provided housing for only 
middle- and upper-income individuals should not receive favorable 
consideration for CRA purposes in designated disaster areas or 
designated distressed nonmetropolitan middle-income geographies even 
when such development was part of a bona fide revitalization plan that 
would provide long-term benefits to the entire community, such as in 
connection with attracting a new employer that would provide jobs to 
low- and moderate-income individuals. Some of the community 
organization commenters stated that it would be appropriate to provide 
favorable consideration to mixed-income housing, which may include 
housing for middle- or upper-income individuals. Only one commenter 
from an industry trade organization commented on this proposed 
guidance. That commenter supported the proposed guidance. No commenters 
disagreed with the guidance addressing the provision of housing in 
underserved nonmetropolitan middle-income areas.
    The Agencies have carefully considered these comments and revised 
the proposed question and answer to address the concerns that have been 
raised. The question and answer, as adopted, clarifies that an activity 
that provides housing for middle- or upper-income individuals qualifies 
as an activity that revitalizes or stabilizes a distressed 
nonmetropolitan middle-income geography or a designated disaster area 
if the housing directly helps to revitalize or stabilize the community 
by attracting new, or retaining existing, businesses or residents and, 
in the case of a designated disaster area, is related to disaster 
recovery. The Agencies generally will consider all activities that 
revitalize or stabilize a distressed nonmetropolitan middle-income 
geography or designated disaster area, but will give greater weight to 
those activities that are most responsive to community needs, including 
needs of low- or moderate-income individuals or neighborhoods. Thus, 
for example, a loan solely for middle- or upper-income housing in a 
community in need of financing for low- and moderate-income housing 
would be given very little weight if there is only a short-term benefit 
to low- and moderate-income individuals in the community through the 
creation of temporary construction jobs. An activity will be presumed 
to revitalize or stabilize such a geography or area if the activity is 
consistent with a bona fide government revitalization or stabilization 
plan or disaster recovery plan.
    The portion of the answer addressing underserved nonmetropolitan 
middle-income geographies is adopted as proposed.
    Sec.  ----.12(g)(4)(ii)-1:
    This proposed question and answer provided guidance on what is 
meant by a ``designated disaster area.'' The proposed guidance stated 
that a ``designated disaster area'' would be a disaster area designated 
by Federal or state government. The Agencies have further reviewed how, 
when, and for what purposes disaster areas are designated. State 
disasters or emergencies are usually declared as a prerequisite for 
Federal disaster assistance. Thus, the Agencies have determined that 
restricting the term ``designated disaster area'' to federally 
designated disaster areas would not limit the scope of that term in any 
meaningful way. Some Federal disaster area designations are solely for 
the purpose of providing short-term public assistance to address debris 
removal or emergency protective measures immediately following an 
incident--specifically, Federal Emergency Management Agency (FEMA) 
Public Assistance Emergency Work Category A (Debris Removal) and 
Category B (Emergency Protective Measures). The Agencies believe that 
designations for these purposes do not exhibit the type of conditions 
that would require sustained disaster recovery-related revitalization 
or stabilization activities.
    Therefore, based on comments received and information from FEMA 
staff, the Agencies are revising the guidance to state that a 
``designated disaster area'' is a major disaster area designated by the 
Federal government. Such disaster designations include, in particular, 
Major Disaster Declarations administered by FEMA, but exclude counties 
designated to receive only FEMA Public Assistance Emergency Work 
Category A (Debris Removal) and/or Category B (Emergency Protective 
Measures).
    The proposed guidance also described a ``lag period'' following the 
expiration of a ``designated disaster,'' during which a bank's 
revitalization and stabilization activities would continue to receive 
consideration as community development activities. The Agencies asked 
for specific comment on the description of the duration of a designated 
disaster and the appropriateness of the proposed lag period.
    Most community organization commenters agreed that a one-year lag 
period would be appropriate, particularly if a bank's revitalization or 
stabilization activity commenced during the duration of the disaster 
period. Some other commenters, including some banks and bank trade 
organizations, believed a longer lag period, generally three years or 
longer, would be appropriate because it often takes a number of years 
for a community to recover from the economic impact of a disaster, 
particularly a major disaster.
    As to the description of the disaster designation, several 
community organization commenters and one industry trade organization 
commenter believed that the proposed use of the official governmental 
designation of the start and expiration of the disaster would be 
appropriate. On the other hand, one bank commenter indicated that, 
after looking at government Web sites, it was impossible to determine 
when a local disaster designation expired. This commenter suggested 
that, at a minimum, the Agencies should provide guidance on specific 
reference sites where at least the Federal disaster designation 
information could be located.
    Although FEMA makes a public announcement of a disaster 
designation, FEMA generally does not announce an ``expiration'' of the 
disaster designation, nor do its regulations provide for the 
designation's ``expiration.'' FEMA's regulations and practices entail 
different stages relevant to a disaster designation period, such as the 
incident period, the application period, the work completion deadlines, 
and the period that a joint field office is open, but these periods may 
vary from incident to incident, and may not be relevant to all 
designated disasters. FEMA's regulations establish a requirement that 
permanent public assistance work relating to a major disaster must be 
completed within 18 months of the disaster designation (44 CFR 
206.204(c)) unless FEMA grants an extension.

[[Page 12427]]

    After carefully considering this information and the comments 
received, the Agencies have revised the proposed guidance addressing 
the period of time that a bank's activities will receive consideration 
in a designated disaster area. The final guidance states that the 
Agencies have determined to consider disaster recovery-related 
activities that help to revitalize or stabilize a designated disaster 
area for 36 months following the date of designation by the Federal 
government. The Agencies believe that providing a uniform 36-month 
period following disaster designation, during which a bank will receive 
CRA consideration of disaster recovery-related activities that help to 
revitalize or stabilize a disaster area, generally should be adequate 
to address the variety of community revitalization or stabilization 
needs that may arise depending on the nature, extent and severity of 
the particular disaster. Where there is a demonstrable community need 
to extend the period for recognizing revitalization or stabilization 
activities in a particular disaster area to assist in long-term 
recovery efforts, this time period may be extended.
    Finally, the Agencies plan to extend substantially the time periods 
for recovery-related activities in the Gulf Coast areas designated as 
disaster areas because of hurricanes Katrina and Rita beyond 36 months 
from the dates of the disaster designations because of the demonstrated 
community need for long-term involvement by financial institutions in 
helping to address the widespread devastation caused by these 
hurricanes.
    Sec.  ----.12(g)(4)(ii)-2:
    This proposed question and answer discussed how revitalization or 
stabilization activities in a designated disaster area would be 
considered. The proposed guidance stated that bank activities in 
designated disaster areas would be evaluated in the same manner as they 
would be evaluated in a low- or moderate-income geography or a 
designated distressed nonmetropolitan middle-income geography. It 
explained that examiners would determine whether the activities have a 
primary purpose of community development by helping to attract and 
retain residents and businesses (including by providing jobs) or are 
part of a bona fide plan to revitalize or stabilize the geography. The 
proposed guidance also stated that examiners would give greater weight 
to those activities that are most responsive to community needs, 
including those of low- or moderate-income individuals or 
neighborhoods. The proposed guidance also clarified that investments in 
entities that provide community services for, and direct loans and 
financial services provided to, individuals in designated disaster 
areas and to individuals who are displaced by disasters also receive 
consideration under the CRA and cited previous interagency guidance.
    Many commenters addressed this proposed guidance. Community 
organizations generally urged the Agencies to give the greatest weight 
to activities that benefit low- and moderate-income individuals and 
neighborhoods.
    Two financial institution trade organizations, on the other hand, 
emphasized that the entire community, without regard to income, is 
affected by most natural disasters and the recovery of the entire 
community through housing, job creation, and investments is critical. 
These commenters urged the Agencies not to unnecessarily restrict CRA 
consideration of recovery-related efforts to those activities that 
benefit only low- and moderate-income individuals or communities.
    Finally, several commenters favorably addressed the portion of the 
answer stating that bank activities that provide assistance to persons 
displaced by disasters would receive consideration.
    The Agencies have revised this question and answer to address 
commenters' concerns and to provide consistent guidance on the 
standards that apply to what qualifies as revitalization or 
stabilization activities. The revised answer states that the Agencies 
generally will consider an activity to revitalize or stabilize a 
designated disaster area if it helps to attract new, or retain 
existing, businesses or residents and is related to disaster recovery. 
An activity will be presumed to revitalize or stabilize the area if the 
activity is consistent with a bona fide government revitalization and 
stabilization plan or disaster recovery plan. The Agencies generally 
will consider all activities related to disaster recovery that 
revitalize or stabilize a designated disaster area, but will give 
greater weight to those activities that are most responsive to 
community needs, including needs of low- or moderate-income individuals 
or neighborhoods.
    In response to commenters, the question and answer provides 
additional examples of activities that will be considered to revitalize 
or stabilize a designated disaster area. Qualifying activities may 
include, for example, providing financing to help retain businesses in 
the area that employ local residents, including low- and moderate-
income individuals; providing financing to attract a major new employer 
that will create long-term job opportunities, including for low- and 
moderate-income individuals; activities that provide financing or other 
assistance for essential community-wide infrastructure, community 
services, and rebuilding needs; and activities that provide housing, 
financial assistance, and services to individuals in designated 
disaster areas and to individuals who have been displaced from those 
areas, including low- and moderate-income individuals.
    Sec.  ----.12(g)(4)(iii)-1:
    This proposed question and answer explained what criteria the 
Agencies would use to designate nonmetropolitan middle-income 
geographies that are ``distressed'' or ``underserved.'' The proposed 
guidance also stated that the Agencies will publish data source 
information along with the list of designated census tracts on the 
Federal Financial Institutions Examination Council (FFIEC) Web site 
(http://www.ffiec.gov).
    The Agencies received very few comments on this proposed guidance. 
One commenter suggested that the distressed areas designated for CRA 
purposes should be the same as Community Development Financial 
Institution (CDFI) Fund distressed areas. Although the Agencies 
considered using CDFI Fund distressed areas, the Agencies learned that 
the CDFI Fund designates distressed areas based on data that is not 
updated annually. Because data sources are available that provide 
updated data annually, the Agencies decided to designate distressed 
nonmetropolitan middle-income geographies based on the more current 
data.
    Another commenter suggested that the criteria used to identify 
distressed or underserved areas would serve to exclude needy areas 
because they are based on a relatively large geographic unit, the 
census tract. This commenter pointed out that rural census tracts are 
relatively large and contain a wide variety of types of populations, 
with pockets of distress encompassed within relatively better-off 
areas. The commenter suggested that basing the distressed or 
underserved designation at the block group level, rather than at the 
census tract level, would be more effective in identifying distressed 
areas. This suggestion is not adopted because the regulation refers to 
``distressed or underserved nonmetropolitan middle-income geographies'' 
(Sec.  .----12(g)(4)(iii)), and a ``geography'' is defined in the 
Agencies'' regulations as ``a census tract delineated by the United 
States Bureau of the Census in the most recent decennial census.''

[[Page 12428]]

    The question and answer is adopted as proposed.
    Sec.  ----.12(g)(4)(iii)-2:
    This proposed question and answer stated that the Agencies will 
update the list of designated distressed and underserved 
nonmetropolitan middle-income geographies annually and will publish the 
list on the FFIEC Web site (http://www.ffiec.gov). The Agencies also 
proposed a twelve-month ``lag period'' immediately after a census tract 
is reclassified as no longer distressed or underserved. During the lag 
period, revitalization and stabilization activities would receive 
consideration as community development if the activities would have 
been considered to have a primary purpose of community development if 
the census tract in which they were located were still designated as 
distressed or underserved. The Agencies specifically asked for comment 
on the appropriateness of the lag period.
    The Agencies received several comments on this proposed guidance. 
One commenter believed that no lag period was necessary, but if a lag 
period were adopted, then one year should be the maximum length 
considered. Several commenters believed that a one-year lag period 
would be appropriate, while several other commenters, including 
representatives of financial institutions, urged the Agencies to 
provide a lag period of three or more years.
    One commenter asked whether the Agencies would publish the list of 
designated distressed or underserved nonmetropolitan middle-income 
geographies more frequently than annually. The Agencies will update the 
list annually based on annual changes in source data; the list will be 
published continuously on the FFIEC Web site.
    The proposed question and answer is being adopted with a twelve-
month lag period. In addition, the Agencies will indicate which 
designated census tracts are in their lag periods.
    Sec.  ----.12(g)(4)(iii)-3:
    This proposed question and answer explained how revitalization and 
stabilization activities in designated distressed or underserved 
nonmetropolitan middle-income geographies would be evaluated.
    Several commenters asserted that the proposed question and answer 
was too complicated because there was one answer for designated 
distressed nonmetropolitan middle-income areas and another answer for 
designated underserved nonmetropolitan middle-income areas. To help 
clarify the guidance, the issues are addressed in separate questions 
and answers--one addressing designated distressed nonmetropolitan 
middle-income areas (Sec.  ----.12(g)(4)(iii)-3), and the other 
addressing designated underserved nonmetropolitan middle-income areas 
(Sec.  ----.12(g)(4)(iii)-4).
    As proposed, in designated distressed nonmetropolitan middle-income 
geographies, examiners would determine whether the activities have a 
primary purpose of community development by helping to attract and 
retain residents and businesses (including by providing jobs) or are 
part of a bona fide plan to revitalize or stabilize the geography. The 
activities must have had a long-term direct benefit to the entire 
community, including low- and moderate-income individuals and 
neighborhoods.
    Similar to the comments addressing the proposed guidance dealing 
with revitalization or stabilization activities in designated disaster 
areas, some community organization commenters were concerned that not 
enough emphasis was placed on benefits to low- and moderate-income 
individuals in designated distressed nonmetropolitan middle-income 
geographies. The question and answer as adopted revises and clarifies 
the guidance addressing revitalization or stabilization activities in 
distressed nonmetropolitan middle-income geographies to make it 
consistent with the similar guidance applicable to banks' 
revitalization and stabilization activities in designated disaster 
areas. The guidance specifically states that examiners will give 
greater weight to those activities that are most responsive to 
community needs, including the needs of low-or moderate-income 
individuals or neighborhoods.
    The proposed guidance addressing evaluation of revitalization or 
stabilization activities in underserved nonmetropolitan middle-income 
geographies stated that bank activities that facilitate the 
construction, expansion, improvement, maintenance, or operation of 
essential infrastructure or facilities for health services, education, 
public safety, public services, industrial parks, or affordable housing 
generally would be considered to meet essential community needs and 
qualify for consideration as a community development activity, so long 
as the infrastructure, facility, or affordable housing serves low- and 
moderate-income individuals. One commenter asked how much benefit to 
low-or moderate-income individuals there must be for an activity in an 
underserved nonmetropolitan middle-income area to qualify for 
consideration. Another commenter suggested that a significant 
percentage of the people that benefit from the activity should be low-
or moderate-income. Other commenters suggested that the Agencies should 
give more weight to revitalization or stabilization activities that 
benefit low-or moderate-income individuals in underserved 
nonmetropolitan middle-income geographies.
    The question and answer has been revised to include a restatement 
of the standard that appears in the regulations, that is, that 
activities revitalize or stabilize an underserved nonmetropolitan 
middle-income geography if they help to meet essential community needs, 
including the needs of low-or moderate-income individuals. Activities 
such as financing for the construction, expansion, improvement, 
maintenance, or operation of essential infrastructure or facilities for 
health services, education, public safety, public services, industrial 
parks, or affordable housing, will be evaluated under these criteria to 
determine if they qualify for revitalization or stabilization 
consideration.
    Sec.  ----.12(i)-3:
    The proposal would have revised the existing question and answer 
from the 2001 Interagency Questions and Answers, which lists examples 
of community development services, to add two new examples. The first 
new example stated that providing financial services to low-or 
moderate-income individuals through branches and other facilities in 
low-or moderate-income areas is a community development service (unless 
the provision of such services has been considered in the evaluation of 
a bank's retail banking services under Sec.  ----.24(d)).
    Commenters were generally in favor of this revision and the 
Agencies are adopting this revision as proposed.
    The second example of a community development service that was 
proposed was providing international remittances services that increase 
access to financial services by low- and moderate-income persons (for 
example, by offering reasonably priced international remittances 
services in connection with a low-cost account). Commenters were 
generally in favor of this proposed revision. Therefore, the revision 
to this guidance is adopted as proposed.
    Sec.  ----.12(t)-1:
    This proposed question and answer addressed consideration for 
prior-period investments when examiners evaluate qualified investments. 
It stated that examiners would consider investments that were made 
prior to the current examination, but are still outstanding. 
Qualitative factors would affect the weight given to both current 
period and

[[Page 12429]]

outstanding prior-period qualified investments.
    Several community organizations and affiliates of community 
organizations commented on this proposed guidance. These commenters 
stressed that banks should not be able to compensate for low levels of 
current-period qualified investments with prior-period investments. 
Some of these commenters also believed that consideration of prior 
period investments should be limited to investments that are 
particularly innovative, complex, or responsive to community needs.
    The guidance is adopted as proposed. Although prior-period 
investments may receive consideration in a bank's current evaluation, 
examiners typically distinguish between current-period and prior-period 
investments when listing the amounts of a bank's investments in the 
institution's performance evaluation. Further, examiners use 
qualitative factors to determine how much consideration a bank receives 
for any given qualified investment. Greater weight is given to 
investments that are responsive to community needs, innovative, or 
complex, as applicable.
    One commenter stated that this guidance should apply to all sizes 
and types of banks because some investments not only have significant 
impact, they also continue to utilize bank assets and represent a 
continuing financial commitment by the bank to the community. This 
question and answer clarifies that the guidance applies to all banks.
    Sec.  ----.12(t)-4:
    The proposal would have added investments in Rural Business 
Investment Companies to the question and answer from the 2001 
Interagency Questions and Answers that lists examples of qualified 
investments. The Agencies received only a few comments on this 
proposal. All of the comments favored the proposed addition. Therefore, 
the guidance is adopted as proposed.
    Sec.  ----.12(u)(2)-1:
    This proposed question and answer stated that adjustments to the 
asset-size thresholds for small banks and intermediate small banks will 
be made annually based on changes to the Consumer Price Index. It also 
stated that changes in the asset-size thresholds would be published in 
the Federal Register.
    The Agencies received very few comments on this proposed guidance. 
One financial institution trade organization commented that publication 
of adjustments in the Federal Register is important.
    The question and answer is adopted as proposed.
    Sec.  ----.26-1:
    This proposed question and answer stated that, when evaluating a 
small bank or intermediate small bank, examiners will consider, at the 
bank's request, retail and community development loans originated or 
purchased by an affiliate, qualified investments made by an affiliate, 
or community development services provided by an affiliate. The bank 
must maintain sufficient information so that examiners may evaluate 
these activities under the appropriate performance criteria and ensure 
that another institution does not claim the activities. The constraints 
applicable to affiliate activities claimed by large institutions would 
also apply to affiliate activities claimed by small banks and 
intermediate small banks. In addition, examiners would not include 
affiliate lending in calculating the percentage of loans and, as 
appropriate, other lending-related activities located in a bank's 
assessment area.
    Very few comments addressing this proposed guidance were received. 
All comments were favorable. Although the question has been rephrased 
for purposes of clarity, the answer is adopted as proposed.
    Sec.  ----.26(c)-1:
    This proposed question and answer discussed how the community 
development test would be applied flexibly for intermediate small 
banks. It described how intermediate small banks engage in a 
combination of community development loans, qualified investments, and 
community development services that are evaluated under the community 
development test. It stated that a bank may not simply ignore one or 
more of these categories of community development, nor do the 
regulations prescribe a required threshold for community development 
loans, qualified investments, or community development services. A bank 
would have the flexibility to allocate its resources among community 
development loans, qualified investments, and community development 
services in amounts it reasonably determines are most responsive to 
community development needs and opportunities.
    The Agencies received several letters commenting on this proposed 
guidance. Most of the comments were from community organizations, 
although a few were from financial industry trade organizations.
    Community organization commenters agreed that intermediate small 
banks should not ignore any category of community development 
activities. Many of these commenters expressed concern that qualitative 
factors, such as those considered in a bank's performance context, 
would be used to excuse low levels of community development lending, 
qualified investments, or community development services. One bank 
trade organization, on the other hand, asserted that appropriate levels 
of each type of community development activity would depend on the 
bank, the community, and the local needs and opportunities.
    A number of community organization commenters discussed the 
difference between community needs and opportunities for community 
development activities. Generally, these commenters stressed that 
community needs, rather than opportunities for engaging in community 
development activities, must be the main consideration.
    The question and answer is adopted as proposed. The guidance 
provides appropriate balance between the flexibility of banks to 
allocate their resources in a manner that is most responsive to 
community needs with the expectation that banks will engage in 
community development activities (loans, investments, and services) 
consistent with those needs and opportunities.
    One financial institution trade organization expressed concern that 
the proposed guidance imposed a ``needs assessment'' requirement on 
intermediate small banks. The Agencies do not intend that intermediate 
small banks prepare a particular ``needs assessment'' solely for 
purposes of its CRA evaluation under the community development test. If 
intermediate small banks prepare business plans and market analyses 
that reflect community needs and opportunities, they may rely on such 
information, as well as other currently available information, when 
assessing community development needs in their assessment areas.
    Sec.  ----.26(c)(3)-1:
    This proposed question and answer stated that examiners will 
consider not only the types of services provided to benefit low- and 
moderate-income individuals, but also the provision and availability of 
services to low- and moderate-income individuals, including through 
branches and other facilities located in low- and moderate-income 
areas.
    A large number of letters from community organizations commented on 
this proposed guidance. Most of these commenters asserted that 
intermediate small banks should be

[[Page 12430]]

evaluated on the number and percent of branches located in low- and 
moderate-income geographies. The revised regulations do not include a 
retail banking service test for intermediate small banks that evaluates 
the number and percent of an intermediate small bank's branches located 
in low- and moderate-income geographies.
    However, in response to the commenters, the guidance is being 
revised to clarify that the presence of branches located in low- and 
moderate-income geographies helps to demonstrate the availability of 
banking services to low- and moderate-income individuals.
    Sec.  ----.26(c)(4)-1:
    This proposed question and answer discussed what examiners would 
consider when reviewing the responsiveness of community development 
lending, qualified investments, and community development services by 
an intermediate small bank to the community development needs of the 
area. It stated that, in addition to quantitative measures such as the 
number and amount of community development loans, qualified 
investments, and community development services, examiners would also 
consider qualitative aspects of performance. In particular, examiners 
would evaluate the responsiveness of the bank's community development 
activities in light of the bank's capacity, business strategy, the 
needs of the community, and the number and types of opportunities for 
each type of community development activity. The proposed guidance also 
stated that activities would be considered particularly responsive to 
community development needs if they benefit low- and moderate-income 
individuals in low- and moderate-income areas, designated disaster 
areas, or designated distressed or underserved nonmetropolitan middle-
income geographies.
    Only a few commenters addressed this proposed guidance. Most of 
these comments were generally in agreement with the proposed question 
and answer. One commenter was concerned, however, that qualitative 
factors might be used to explain a bank's low numbers and amounts of 
community development activities and that ``lack of opportunity'' may 
be used to excuse limited performance even when community needs exist.
    The question and answer is adopted as proposed. Agency examiners 
will apply the qualitative factors in the context of intermediate small 
banks in a manner that appropriately considers the needs of the 
community, as well as other relevant information, including the 
expertise of the bank, its business plan, the bank's capacity, and any 
constraints that would prevent the bank from engaging in community 
development activities.

Other Comments

    The Agencies requested comments on any issues raised by the CRA and 
the 2001 Interagency Questions and Answers. Commenters provided 
comments on a number of topics that were unrelated to the proposed 
questions and answers. The Agencies' staffs will consider these 
comments in their general review of the 2001 Interagency Questions and 
Answers.
    The Agencies received a number of comments suggesting specific 
types of investments and services that should be listed in the 
questions and answers as examples of qualified investments and 
community development services. The Agencies will consider these 
suggestions during their general update of the 2001 Interagency 
Questions and Answers.
    One issue that the Agencies anticipate addressing in proposed 
revisions to the 2001 Interagency Questions and Answers concerns 
whether intermediate small banks' small business loans, small farm 
loans, or home mortgage loans may be considered as community 
development loans, if the loans have a primary purpose of ``community 
development,'' as that term is defined in the regulations. Under the 
regulations' definition of ``community development loan,'' a loan that 
has been reported as a small business loan or small farm loan as 
required by the CRA regulations, or as a mortgage loan under the Home 
Mortgage Disclosure Act (HMDA), is not a community development loan, 
even if the loan has a primary purpose of community development. Small 
banks, however, are not required by the CRA regulations to report small 
business loans or small farm loans; and some small banks, as well as 
some large banks, are not required by HMDA to report home mortgage 
loans. Thus, after the definition of ``community development loan'' was 
adopted, a question arose as to its application to banks that are not 
required to report home mortgage loans, small business loans, or small 
farm loans. In response to that question, the Agencies adopted Q&A 
Sec. Sec.  ----.12(i) & 563e.12(h)-2, which indicates that examiners 
will not consider a loan by a small bank that meets the definition of 
either a ``small business loan'' or a ``small farm loan'' as a 
community development loan regardless of the purpose of the loan, even 
though the regulation does not require a small bank to report small 
business or small farm loans. Similarly, the question and answer also 
states that examiners will not treat any loan that meets the definition 
of a HMDA-reportable mortgage loan as a community development loan even 
if the bank that made the loan is not required by HMDA to report 
mortgage loans (with the exception of multifamily dwelling loans). The 
Agencies anticipate that they will seek comment on whether this 
guidance is appropriate for intermediate small banks, which, unlike 
large banks, are not required to report small business or small farm 
loans and, unless they opt to be evaluated as large banks, have their 
community development activities, including community development 
loans, evaluated in a separate community development test. Meanwhile, 
evaluations of small banks, including intermediate small banks, will 
continue to be governed by the guidance in Q&A Sec. Sec.  ----.12(i) & 
563e.12(h)-2.

Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA)

    The SBREFA requires an agency, for each rule for which it prepares 
a final regulatory flexibility analysis, to publish one or more 
compliance guides to help small entities understand how to comply with 
the rule.
    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
OCC and FDIC certified that their proposed CRA rule would not have a 
significant economic impact on a substantial number of small entities 
and invited comments on that determination. The Board did not so 
certify, and requested comments in several areas. See 70 FR 12148, 
12154 (March 11, 2005). In connection with the joint final rule, the 
FDIC and OCC certified that the joint final rule would not have a 
significant impact on a substantial number of small entities. In 
response to public comments it received, the Board prepared a final 
regulatory flexibility analysis and described how the final rule 
minimizes the economic impact on small entities by making the twelve 
affected state member banks eligible for the streamlined CRA process. 
See 70 FR at 44264-65 (August 2, 2005).
    In accordance with section 212 of the SBREFA and the Agencies' 
continuing efforts to provide clear, understandable regulations, staffs 
of the Agencies have compiled these interagency Questions and Answers. 
The interagency Questions and Answers serve the same purpose as the 
compliance guide described in the SBREFA by providing

[[Page 12431]]

guidance on a variety of issues of particular concern to small banks.
    The text of the Interagency Questions and Answers Regarding 
Community Reinvestment follows:
    Sec.  ----.12(g)(4) Activities That Revitalize or Stabilize--
    Sec.  ----.12(g)(4)-1: Is the revised definition of community 
development, effective September 1, 2005, applicable to all banks or 
only to intermediate small banks?
    A1: The revised definition of community development is applicable 
to all banks.
     Sec.  .----12(g)(4)-2: Will activities that provide housing for 
middle-income and upper-income persons qualify for favorable 
consideration as community development activities when they help to 
revitalize or stabilize a distressed or underserved nonmetropolitan 
middle-income geography or designated disaster areas?
    A2: An activity that provides housing for middle- or upper-income 
individuals qualifies as an activity that revitalizes or stabilizes a 
distressed nonmetropolitan middle-income geography or a designated 
disaster area if the housing directly helps to revitalize or stabilize 
the community by attracting new, or retaining existing, businesses or 
residents and, in the case of a designated disaster area, is related to 
disaster recovery. The Agencies generally will consider all activities 
that revitalize or stabilize a distressed nonmetropolitan middle-income 
geography or designated disaster area, but will give greater weight to 
those activities that are most responsive to community needs, including 
needs of low- or moderate-income individuals or neighborhoods. Thus, 
for example, a loan solely to develop middle- or upper-income housing 
in a community in need of low- and moderate-income housing would be 
given very little weight if there is only a short-term benefit to low- 
and moderate-income individuals in the community through the creation 
of temporary construction jobs. (A housing-related loan is not 
evaluated as a ``community development loan'' if it has been reported 
or collected by the institution or its affiliate as a home mortgage 
loan, unless it is a multifamily dwelling loan. See Sec.  --
--.12(i)(2)(i) and Q&A Sec. Sec.  ----.12(i) & 563e.12(h)-2.) An 
activity will be presumed to revitalize or stabilize such a geography 
or area if the activity is consistent with a bona fide government 
revitalization or stabilization plan or disaster recovery plan. See 
Q&As Sec. Sec.  ----.12(h)(4) & 563e.12(g)(4)-1 and Sec. Sec.  --
--.12(i) & 563e.12(h)-4.
    In underserved nonmetropolitan middle-income geographies, 
activities that provide housing for middle- and upper-income 
individuals may qualify as activities that revitalize or stabilize such 
underserved areas if the activities also provide housing for low- or 
moderate-income individuals. For example, a loan to build a mixed-
income housing development that provides housing for middle- and upper-
income individuals in an underserved nonmetropolitan middle-income 
geography would receive positive consideration if it also provides 
housing for low- or moderate-income individuals.
    Sec.  ----.12(g)(4)(ii) Activities That Revitalize or Stabilize 
Designated Disaster Areas.
    Sec.  .----12(g)(4)(ii)-1: What is a ``designated disaster area'' 
and how long does it last?
    A1: A ``designated disaster area'' is a major disaster area 
designated by the Federal Government. Such disaster designations 
include, in particular, Major Disaster Declarations administered by the 
Federal Emergency Management Agency (FEMA) (http://www.fema.gov ), but 
excludes counties designated to receive only FEMA Public Assistance 
Emergency Work Category A (Debris Removal) and/or Category B (Emergency 
Protective Measures).
    Examiners will consider bank activities related to disaster 
recovery that revitalize or stabilize a designated disaster area for 36 
months following the date of designation. Where there is a demonstrable 
community need to extend the period for recognizing revitalization or 
stabilization activities in a particular disaster area to assist in 
long-term recovery efforts, this time period may be extended.
    Sec.  ----.12(g)(4)(ii)-2 : What activities are considered to 
``revitalize or stabilize'' a designated disaster area, and how are 
those activities considered?
    A2: The Agencies generally will consider an activity to revitalize 
or stabilize a designated disaster area if it helps to attract new, or 
retain existing, businesses or residents and is related to disaster 
recovery. An activity will be presumed to revitalize or stabilize the 
area if the activity is consistent with a bona fide government 
revitalization or stabilization plan or disaster recovery plan. The 
Agencies generally will consider all activities relating to disaster 
recovery that revitalize or stabilize a designated disaster area, but 
will give greater weight to those activities that are most responsive 
to community needs, including the needs of low- or moderate-income 
individuals or neighborhoods. Qualifying activities may include, for 
example, providing financing to help retain businesses in the area that 
employs local residents, including low- and moderate-income 
individuals; providing financing to attract a major new employer that 
will create long-term job opportunities, including for low- and 
moderate-income individuals; providing financing or other assistance 
for essential community-wide infrastructure, community services, and 
rebuilding needs; and activities that provide housing, financial 
assistance, and services to individuals in designated disaster areas 
and to individuals who have been displaced from those areas, including 
low- and moderate-income individuals (see, e.g., Q&As Sec.  ----.12(j) 
& 563e.12(i)-3; Sec.  ----.12(s) & 563e.12(r)-4; Sec.  ----.22(b)(2) & 
(3)-4; Sec.  ----.22(b)(2) & (3)-5; and Sec.  ----.24(d)(3)-1).
    Sec.  ----.12(g)(4)(iii) Activities That Revitalize or Stabilize 
Distressed or Underserved Nonmetropolitan Middle-income Geographies.
    Sec.  ----.12(g)(4)(iii)-1: What criteria are used to identify 
distressed or underserved nonmetropolitan middle-income geographies?
    A1: Eligible nonmetropolitan middle-income geographies are those 
designated by the Agencies as being in distress or that could have 
difficulty meeting essential community needs (underserved). A 
particular geography could be designated as both distressed and 
underserved. As defined in Sec.  ----.12(k), a geography is a census 
tract delineated by the United States Bureau of the Census.
    A nonmetropolitan middle-income geography will be designated as 
distressed if it is in a county that meets one or more of the following 
triggers: (1) An unemployment rate of at least 1.5 times the national 
average, (2) a poverty rate of 20 percent or more, or (3) a population 
loss of 10 percent or more between the previous and most recent 
decennial census or a net migration loss of five percent or more over 
the five-year period preceding the most recent census.
    A nonmetropolitan middle-income geography will be designated as 
underserved if it meets criteria for population size, density, and 
dispersion that indicate the area's population is sufficiently small, 
thin, and distant from a population center that the tract is likely to 
have difficulty financing the fixed costs of meeting essential 
community needs. The Agencies will use as the basis for these 
designations the ``urban influence codes,'' numbered ``7,'' ``10,'' 
``11,'' and ``12,'' maintained by the Economic Research Service of the

[[Page 12432]]

United States Department of Agriculture.
    The Agencies will publish data source information along with the 
list of eligible nonmetropolitan census tracts on the Federal Financial 
Institutions Examination Council Web site (http://www.ffiec.gov ).
    Sec.  ----.12(g)(4)(iii)-2: How often will the Agencies update the 
list of designated distressed and underserved nonmetropolitan middle-
income geographies?
    A2: The Agencies will review and update the list annually as 
needed. The list will be published on the Federal Financial 
Institutions Examination Council Web site (http://www.ffiec.gov ).
    To the extent that changes to the designated census tracts occur, 
the Agencies have determined to adopt a one-year ``lag period.'' This 
lag period will be in effect for the twelve months immediately 
following the date when a census tract that was designated as 
distressed or underserved is removed from the designated list. 
Revitalization or stabilization activities undertaken during the lag 
period will receive consideration as community development activities 
if they would have been considered to have a primary purpose of 
community development if the census tract in which they were located 
were still designated as distressed or underserved.
    Sec.  ----.12(g)(4)(iii)-3: What activities are considered to 
``revitalize or stabilize'' a distressed nonmetropolitan middle-income 
geography, and how are those activities evaluated?
    A3: An activity revitalizes or stabilizes a distressed 
nonmetropolitan middle-income geography if it helps to attract new, or 
retain existing, businesses or residents. An activity will be presumed 
to revitalize or stabilize the area if the activity is consistent with 
a bona fide government revitalization or stabilization plan. The 
Agencies generally will consider all activities that revitalize or 
stabilize a distressed nonmetropolitan middle-income geography, but 
will give greater weight to those activities that are most responsive 
to community needs, including needs of low- or moderate-income 
individuals or neighborhoods. Qualifying activities may include, for 
example, providing financing to attract a major new employer that will 
create long-term job opportunities, including for low- and moderate-
income individuals, and activities that provide financing or other 
assistance for essential infrastructure or facilities necessary to 
attract or retain businesses or residents. See Q&As Sec. Sec.  --
--.12(h)(4) & 563e.12(g)(4)-1 and Sec. Sec.  ----.12(i) and 563e.12(h)-
4.
    Sec.  ----.12(g)(4)(iii)-4: What activities are considered to 
``revitalize or stabilize'' an underserved nonmetropolitan middle-
income geography, and how are those activities evaluated?
    A4: The regulation provides that activities revitalize or stabilize 
an underserved nonmetropolitan middle-income geography if they help to 
meet essential community needs, including needs of low- or moderate-
income individuals. Activities such as financing for the construction, 
expansion, improvement, maintenance, or operation of essential 
infrastructure or facilities for health services, education, public 
safety, public services, industrial parks, or affordable housing, will 
be evaluated under these criteria to determine if they qualify for 
revitalization or stabilization consideration. Examples of the types of 
projects that qualify as meeting essential community needs, including 
needs of low- or moderate-income individuals, would be a new or 
expanded hospital that serves the entire county, including low- and 
moderate-income residents; an industrial park for businesses whose 
employees include low- or moderate-income individuals; a new or 
rehabilitated sewer line that serves community residents, including 
low- or moderate-income residents; a mixed-income housing development 
that includes affordable housing for low- and moderate-income families; 
or a renovated elementary school that serves children from the 
community, including children from low- and moderate-income families. 
Other activities in the area, such as financing a project to build a 
sewer line spur that connects services to a middle- or upper-income 
housing development while bypassing a low- or moderate-income 
development that also needs the sewer services, generally would not 
qualify for revitalization or stabilization consideration in 
geographies designated as underserved. However, if an underserved 
geography is also designated as distressed or a disaster area, 
additional activities may be considered to revitalize or stabilize the 
geography, as explained in Q&As Sec.  ----.12(g)(4)(ii)-2 and Sec.  --
--.12(g)(4)(iii)-3.
    Sec.  ----.12(i) Community Development Service
    Sec.  ----.12(i)-3: What are examples of community development 
services?
    A3: Examples of community development services include, but are not 
limited to:
     Providing financial services to low- and moderate-income 
individuals through branches and other facilities located in low- and 
moderate-income areas, unless the provision of such services has been 
considered in the evaluation of a bank's retail banking services under 
Sec.  ----.24(d);
     Providing technical assistance on financial matters to 
nonprofit, tribal or government organizations serving low- and 
moderate-income housing or economic revitalization and development 
needs;
     Providing technical assistance on financial matters to 
small businesses or community development organizations, including 
organizations and individuals who apply for loans or grants under the 
Federal Home Loan Banks' Affordable Housing Program;
     Lending employees to provide financial services for 
organizations facilitating affordable housing construction and 
rehabilitation or development of affordable housing;
     Providing credit counseling, home-buyer and home-
maintenance counseling, financial planning or other financial services 
education to promote community development and affordable housing;
     Establishing school savings programs and developing or 
teaching financial education curricula for low- or moderate-income 
individuals;
     Providing electronic benefits transfer and point of sale 
terminal systems to improve access to financial services, such as by 
decreasing costs, for low- or moderate-income individuals;
     Providing international remittances services that increase 
access to financial services by low- and moderate-income persons (for 
example, by offering reasonably priced international remittances 
services in connection with a low-cost account); and
     Providing other financial services with the primary 
purpose of community development, such as low-cost bank accounts, 
including ``Electronic Transfer Accounts'' provided pursuant to the 
Debt Collection Improvement Act of 1996, or free government check 
cashing that increases access to financial services for low- or 
moderate-income individuals.
    Examples of technical assistance activities that might be provided 
to community development organizations include:
     Serving on a loan review committee;
     Developing loan application and underwriting standards;
     Developing loan processing systems;
     Developing secondary market vehicles or programs;

[[Page 12433]]

     Assisting in marketing financial services, including 
development of advertising and promotions, publications, workshops and 
conferences;
     Furnishing financial services training for staff and 
management;
     Contributing accounting/bookkeeping services; and
     Assisting in fund raising, including soliciting or 
arranging investments.
    Sec.  ----.12(t) Qualified Investment
    Sec.  ----.12(t)-1: When evaluating a qualified investment, what 
consideration will be given for prior-period investments?
    A1: When evaluating a bank's qualified investment record, examiners 
will consider investments that were made prior to the current 
examination, but that are still outstanding. Qualitative factors will 
affect the weighting given to both current period and outstanding 
prior-period qualified investments. For example, a prior-period 
outstanding investment with a multi-year impact that addresses 
assessment area community development needs may receive more 
consideration than a current period investment of a comparable amount 
that is less responsive to area community development needs.
    Sec.  ----.12(t)-4: What are examples of qualified investments?
    A4. Examples of qualified investments include, but are not limited 
to, investments, grants, deposits or shares in or to:
     Financial intermediaries (including, Community Development 
Financial Institutions (CDFIs), Community Development Corporations 
(CDCs), minority- and women-owned financial institutions, community 
loan funds, and low-income or community development credit unions) that 
primarily lend or facilitate lending in low- or moderate-income areas 
or to low- and moderate-income individuals in order to promote 
community development, such as a CDFI that promotes economic 
development on an Indian reservation;
     Organizations engaged in affordable housing rehabilitation 
and construction, including multifamily rental housing;
     Organizations, including for example, Small Business 
Investment Companies (SBICs), specialized SBICs, and Rural Business 
Investment Companies (RBICs), that promote economic development by 
financing small businesses;
     Facilities that promote community development in low- and 
moderate-income areas for low- and moderate-income individuals, such as 
youth programs, homeless centers, soup kitchens, health care 
facilities, battered women's centers, and alcohol and drug recovery 
centers;
     Projects eligible for low-income housing tax credits;
     State and municipal obligations, such as revenue bonds, 
that specifically support affordable housing or other community 
development;
     Not-for-profit organizations serving low- and moderate-
income housing or other community development needs, such as counseling 
for credit, home-ownership, home maintenance, and other financial 
services education; and
     Organizations supporting activities essential to the 
capacity of low- and moderate-income individuals or geographies to 
utilize credit or to sustain economic development, such as, for 
example, day care operations and job training programs that enable 
people to work.
    Sec.  ----.12(u)(2): Small Bank Adjustment
    Sec.  ----.12(u)(2)-1: How often will the asset size thresholds for 
small banks and intermediate small banks be changed, and how will these 
adjustments be communicated?
    A1: The asset size thresholds for ``small banks'' and 
``intermediate small banks'' will be adjusted annually based on changes 
to the Consumer Price Index. More specifically, the dollar thresholds 
will be adjusted annually based on the year-to-year change in the 
average of the Consumer Price Index for Urban Wage Earners and Clerical 
Workers, not seasonally adjusted for each twelve-month period ending in 
November, with rounding to the nearest million. Any changes in the 
asset size thresholds will be published in the Federal Register.
    Sec.  ----.26: Small Bank Performance Standards
    Sec.  ----.26-1: When evaluating a small or intermediate small 
bank's performance, will examiners consider, at the institution's 
request, retail and community development loans originated or purchased 
by affiliates, qualified investments made by affiliates, or community 
development services provided by affiliates?
    A1: Yes. However, a small institution that elects to have examiners 
consider affiliate activities must maintain sufficient information that 
the examiners may evaluate these activities under the appropriate 
performance criteria and ensure that the activities are not claimed by 
another institution. The constraints applicable to affiliate activities 
claimed by large institutions also apply to small and intermediate 
small institutions. See Q&A Sec.  ----.22(c)(2) and related guidance 
provided to large institutions regarding affiliate activities. 
Examiners will not include affiliate lending in calculating the 
percentage of loans and, as appropriate, other lending-related 
activities located in a bank's assessment area.
    Sec.  ----.26(c) Intermediate Small Bank Community Development Test
    Sec.  ----.26(c)-1: How will the community development test be 
applied flexibly for intermediate small banks?
    A1: Generally, intermediate small banks engage in a combination of 
community development loans, qualified investments, and community 
development services. A bank may not simply ignore one or more of these 
categories of community development, nor do the regulations prescribe a 
required threshold for community development loans, qualified 
investments, and community development services. Instead, based on the 
bank's assessment of community development needs in its assessment 
area(s), it may engage in different categories of community development 
activities that are responsive to those needs and consistent with the 
bank's capacity.
    An intermediate small bank has the flexibility to allocate its 
resources among community development loans, qualified investments, and 
community development services in amounts that it reasonably determines 
are most responsive to community development needs and opportunities. 
Appropriate levels of each of these activities would depend on the 
capacity and business strategy of the bank, community needs, and number 
and types of opportunities for community development.
    Sec.  ----.26(c)(3) Community Development Services under 
Intermediate Small Bank Community Development Test
    Sec.  ----.26(c)(3)-1: What will examiners consider when evaluating 
the provision of community development services by an intermediate 
small bank?
    A1: Examiners will consider not only the types of services provided 
to benefit low- and moderate-income individuals, such as low-cost bank 
checking accounts and low-cost remittance services, but also the 
provision and availability of services to low- and moderate-income 
individuals, including through branches and other facilities located in 
low- and moderate-income areas. Generally, the presence of branches 
located in low- and moderate-income geographies will help to 
demonstrate the availability of banking services to low- and moderate-
income individuals.
    Sec.  ----.26(c)(4) Responsiveness to Community Development Needs 
under

[[Page 12434]]

Intermediate Small Bank Community Development Test
    Sec.  ----.26(c)(4)-1: When evaluating an Intermediate Small Bank's 
community development record, what will examiners consider when 
reviewing the responsiveness of community development lending, 
qualified investments, and community development services to the 
community development needs of the area?
    A1: When evaluating an Intermediate Small Bank's community 
development record, examiners will consider not only quantitative 
measures of performance, such as the number and amount of community 
development loans, qualified investments, and community development 
services, but also qualitative aspects of performance. In particular, 
examiners will evaluate the responsiveness of the bank's community 
development activities in light of the bank's capacity, business 
strategy, the needs of the community, and the number and types of 
opportunities for each type of community development activity (its 
performance context). Examiners also will consider the results of any 
assessment by the institution of community development needs, and how 
the bank's activities respond to those needs.
    An evaluation of the degree of responsiveness considers the 
following factors: The volume, mix, and qualitative aspects of 
community development loans, qualified investments, and community 
development services. Consideration of the qualitative aspects of 
performance recognizes that community development activities sometimes 
require special expertise or effort on the part of the institution or 
provide a benefit to the community that would not otherwise be made 
available. (However, ``innovativeness'' and ``complexity,'' factors 
examiners consider when evaluating a large bank under the lending, 
investment, and service tests, are not criteria in the intermediate 
small banks' community development test.) In some cases, a smaller loan 
may have more qualitative benefit to a community than a larger loan. 
Activities are considered particularly responsive to community 
development needs if they benefit low- and moderate-income individuals 
in low- or moderate-income geographies, designated disaster areas, or 
distressed or underserved nonmetropolitan middle-income geographies. 
Activities are also considered particularly responsive to community 
development needs if they benefit low- or moderate-income geographies.
    This concludes the text of the Interagency Questions and Answers 
Regarding Community Reinvestment.

    Dated: March 1, 2006.
John C. Dugan,
Comptroller of the Currency.

    By order of the Board of Governors of the Federal Reserve 
System, March 1, 2006.
Jennifer J. Johnson,
Secretary of the Board.

    Dated at Washington, DC, this second day of March, 2006.

Federal Deposit Insurance Corporation.
 Valerie J. Best,
 Assistant Executive Secretary.
[FR Doc. 06-2188 Filed 3-9-06; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P