Federal Reserve Board: Merger Process Needs Guidelines for Community
Reinvestment Issues (Letter Report, 09/24/1999, GAO/GGD-99-180).
Pursuant to a congressional request, GAO reviewed large bank holding
company mergers and the impact of such mergers on low- and
modeate-income (LMI) areas, focusing on: (1) the Federal Reserve Board's
(FRB) legal responsibilities in assessing Bank Holding Company Act of
1956 (BHC) mergers for Community Reinvestment Act of 1977 (CRA)
performance; (2) FRB's process for assessing the CRA performance of six
large BHC merger applicants, including how FRB addressed the principal
public concerns related to the CRA performance; and (3) the premerger
and postmerger mortgage lending in LMI and minority communities for
three large BHC mergers.
GAO noted that: (1) in acting on a BHC merger application, FRB must
consider the convenience and needs of the community to be served under
the BHC Act and take into account the record of the relevant depository
institutions under CRA; (2) neither the BHC Act nor CRA, or their
legislative histories, provide guidance on how FRB is to take these
factors into account when considering a BHC merger application; (3) the
depository institutions' primary federal regulators have developed
guidance for their assessments of a depository institution's CRA
performance; (4) however, FRB has not developed guidance on how it
evaluates the CRA records of the merging BHCs; (5) for the six BHC
merger applications that GAO reviewed, FRB attempted to balance the
regulators' ratings of the depository institutions' CRA performance and
information presented through public comments that raised concerns with
the institutions' CRA records; (6) all of the bank subsidiaries included
in the six mergers had satisfactory or outstanding performance ratings
in their most recent CRA examinations; (7) the principal CRA concerns
raised by commenters included insufficient home mortgage lending,
insufficient small business lending, and branch closures in LMI areas;
(8) FRB analyzed Home Mortgage Disclosure Act of 1975 (HMDA) and small
business data to address concerns of insufficient home mortgage and
small business lending, respectively; (9) FRB's consideration of branch
closures was generally limited to a determination of whether the
applicant had an adequate branch closure policy and its past branch
closure record; (10) FRB approved all six mergers, but four of the
mergers were approved with conditions for the reporting of subsequent
branch closures; (11) FRB's lack of written guidance on how it addresses
public comments raising CRA concerns contributed to the concerns voiced
by community groups and the BHC applicants regarding the lack of
transparency in the merger application process; (12) on the basis of
GAO's analysis of home mortgage lending, BHC merger activity had not
been associated with adverse changes in single-family home mortgage
lending in minority and LMI areas in the major metropolitan areas served
by the acquired BHCs for the three BHC mergers GAO analyzed; and (13)
NBD Corporation's acquisition of First Chicago and Chemical Banking
Corporation's acquisition of Chase Manhattan Bank have been associated
with stable to increased lending in the relevant areas.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: GGD-99-180
TITLE: Federal Reserve Board: Merger Process Needs Guidelines for
Community Reinvestment Issues
DATE: 09/24/1999
SUBJECT: Economically depressed areas
Corporate mergers
Economic analysis
Bank holding companies
Lending institutions
Community development programs
Banking regulation
Minorities
Bank examination
Mortgage loans
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United States General Accounting Office GAO Report
to the Honorable Maxine Waters and the Honorable Bernard Sanders,
House of Representatives September 1999 FEDERAL RESERVE BOARD
Merger Process Needs Guidelines for Community Reinvestment Issues
GAO/GGD-99-180 United States General Accounting Office
General Government Division Washington, D.C. 20548 B-280468
September 24, 1999 The Honorable Maxine Waters The Honorable
Bernard Sanders House of Representatives As you requested, this
report discusses large bank holding company1 (BHC) mergers and the
impact of such mergers on lending in low- and moderate-income
(LMI) areas.2 In reviewing BHC merger applications, the Federal
Reserve Board (FRB) has a statutory responsibility, established by
the Bank Holding Company Act of 1956 (BHC Act) and the Community
Reinvestment Act of 1977 (CRA), to take into account an
institution's record of community credit performance when
evaluating the application. In addition, the BHC Act requires that
FRB take into account the convenience and needs of the community
to be served when reviewing BHC merger applications. As agreed
with your offices, our objectives were to analyze (1) FRB's legal
responsibilities in assessing BHC mergers for CRA performance; (2)
FRB's process for assessing the CRA performance of six large BHC
merger applicants, including how FRB addressed the principal
public concerns related to the CRA performance; and (3) the
premerger and postmerger mortgage lending in LMI and minority
communities for three large BHC mergers. To meet the first two
objectives, we focused on six of the largest bank mergers in the
period of 1995-98.3 1 A bank holding company consists of a parent
company with one or more subsidiaries that may include banks,
thrifts, and other entities providing services that the regulators
consider closely related to banking. 2 You also asked us to
discuss the impact of large bank mergers and enforcement of the
Fair Housing Act and the Equal Credit Opportunity Act
(collectively, the fair lending laws). We are conducting a
separate assignment and issuing another report to address these
issues. 3 The six large BHC mergers we reviewed were (1) NBD
Bancorp, Inc.'s acquisition of First Chicago Corporation in 1995;
(2) Fleet Financial Group's acquisition of Shawmut National
Corporation in 1995; (3) Chemical Banking Corporation's
acquisition of Chase Manhattan Corporation in 1996; (4)
NationsBank Corporation's acquisition of Boatmen's Bancshares,
Inc. in 1997; (5) NationsBank Corporation's acquisition of
BankAmerica Corporation in 1998; and (6) Bank One Corporation's
acquisition of NBD First Chicago Corporation in 1998. Page 1
GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
280468 In acting on a bank holding company merger application, FRB
must Results in Brief consider the convenience and needs of the
community to be served under the BHC Act and take into account the
record of the relevant depository institutions under CRA. Neither
the BHC Act nor CRA, or their legislative histories, provide
guidance on how FRB is to take these factors into account when
considering a BHC merger application. The depository
institutions' primary federal regulators have developed guidance
for their assessments of a depository institution's CRA
performance. However, FRB has not developed guidance on how it
evaluates the CRA records, including the performance ratings and
public comments comprising that record, of the merging BHCs. For
the six BHC merger applications that we reviewed, FRB attempted to
balance the regulators' ratings of the depository institutions'
CRA performance and information presented through public comments
that raised concerns with the institutions' CRA records. All of
the bank subsidiaries included in the six mergers had satisfactory
or outstanding performance ratings in their most recent CRA
examinations. The principal CRA concerns raised by commenters
included insufficient home mortgage lending, insufficient small
business lending, and branch closures in LMI areas. FRB analyzed
Home Mortgage Disclosure Act of 1975 (HMDA) and small business
data to address concerns of insufficient home mortgage and small
business lending, respectively. FRB's consideration of branch
closures was generally limited to a determination of whether the
applicant had an adequate branch closure policy and its past
branch closure record. FRB approved all six mergers, but four of
the mergers were approved with conditions for the reporting of
subsequent branch closures. FRB's lack of written guidance on how
it addresses public comments raising CRA concerns contributed to
the concerns voiced by community groups and the BHC applicants
regarding the lack of transparency in the merger application
process. In this report, we recommend that FRB address this lack
of transparency. On the basis of our analysis of home mortgage
lending, BHC merger activity had not been associated with adverse
changes in single-family home mortgage lending in minority and LMI
areas in the major metropolitan areas served by the acquired BHCs
for the three BHC mergers we analyzed. NBD's acquisition of First
Chicago and Chemical's acquisition of Chase Manhattan have been
associated with stable to increased lending in the relevant areas.
Fleet's acquisition of Shawmut has been associated with a decline
in Fleet's market share in the relevant areas that mirrored its
decline in overall market share in the Boston metropolitan
statistical area. Page 2 GAO/GGD-99-180
Guidelines for Community Reinvestment Issues B-280468 Under the
BHC Act, a bank holding company must obtain FRB's approval
Background before merging with or acquiring another bank
holding company. In reviewing an application filed by a bank
holding company, FRB is required to consider several factors,
including the financial and managerial resources of the applicant,
the future prospects of both the applicant and the bank holding
company that is to be acquired, the competitive effects of the
merger, and the convenience and needs of the community to be
served. Even before CRA was enacted, FRB's regulations called for
public comments in connection with the merger applications
pursuant to the BHC Act obligation of FRB to ensure that the
merger would meet the convenience and needs of the local
community. The Board of Governors has the authority to delegate
its application authority to the Reserve Banks if the application
fits certain criteria. However, an application may raise several
issues that might require Board Action under such factors as the
financial, managerial, and convenience and needs of the community,
including the CRA performance of the applicant. FRB approved the
six BHC mergers in our study. With the exception of NBD's
acquisition of First Chicago and Bank One's acquisition of NBD
First Chicago, the lead bank subsidiaries4 also took actions to
merge their operations. Bank subsidiaries are also required to
receive approval from their primary regulators for such
combinations. For three BHC mergers, the lead bank subsidiaries
of the merging BHCs submitted their applications to their primary
regulators after FRB approved their BHC applications. CRA requires
all federal bank and thrift regulators-FRB, the Office of the
Comptroller of the Currency (OCC), the Office of Thrift
Supervision (OTS), and the Federal Deposit Insurance Corporation
(FDIC)-to encourage depository institutions under their
jurisdiction to help meet the credit needs in all areas of the
community that the institution is chartered to serve, consistent
with safe and sound operations. CRA requires that the appropriate
federal supervisory authority (1) assess the institution's record
of meeting the credit needs of its entire community, including LMI
areas, and (2) take that record into account in its evaluation of
bank expansion applications. Such applications include those to
establish or relocate a branch or home office and applications for
mergers, consolidations, or the purchase of assets or assumption
of liabilities of a regulated financial institution. Assessment
areas, also called delineated areas, represent the 4 In this
report, we refer to banks and thrifts that are subsidiaries of
BHCs as bank subsidiaries. Lead bank subsidiary means the largest
insured depository institution controlled by the bank holding
company at any time. Page 3
GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
280468 communities for which the regulators are to assess an
institution's record of CRA performance. CRA also requires the
regulators to periodically assess an institution's community
lending performance during examinations. Only insured banks and
thrifts are subject to the provisions of CRA. On the basis of the
findings of the examination, depository institutions are assigned
a rating-that is, outstanding, satisfactory, needs to improve, or
substantial noncompliance. Nonbank financial institutions, such
as mortgage companies, are not subject to CRA provisions.5 Unlike
certain other banking laws, CRA does not provide regulators with
the authority to take enforcement action on the basis of findings
of noncompliance resulting from the examination process. The CRA
application evaluation process is the exclusive mechanism for
enforcing the statute. Regulations proposed in 1993 and 1994 by
the regulators included a new set of sanctions to enforce CRA.
According to the proposed regulations, a poor CRA rating would
have been considered a violation of a bank's affirmative
obligation to meet the credit needs of its entire community. A
bank that received a CRA rating of substantial noncompliance would
have been subject to enforcement actions authorized by the Federal
Deposit Insurance Act.6 In a letter to OCC dated December 15,
1994, the Department of Justice (Justice) concluded that the
agencies lack legal authority to use cease and desist orders and
civil money penalties to combat noncompliance with CRA. The final
regulations did not contain the enforcement provisions, but,
consistent with the statute, did require that the CRA record be
taken into account in the application process. Since the initial
enactment of CRA, the regulations that implement the act have been
amended.7 In 1993, the Clinton Administration instructed the
federal bank regulators to revise the CRA regulations by moving
from a process- and paperwork-based system to a performance-based
system focusing on results, especially the results in LMI areas of
an institution's communities. Based on these instructions, the
federal banking agencies replaced the qualitative CRA examination
system with a more quantitative system that is based on actual
performance. For large retail institutions, CRA performance is
measured through the use of three tests as follows. 5 In this
report, we refer to BHC subsidiaries that are not insured
depository institutions, such as mortgage companies, as nonbank
subsidiaries. 6 Section 8 of the Federal Deposit Insurance Act
provides enforcement mechanisms to the regulators for violations
of banking law. Among the mechanisms are cease and desist orders
and civil money penalties. 7 FRB implemented CRA with its
Regulation BB. Page 4
GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
280468 * The lending test entails a review of an institution's
lending record, including originations and purchases of home
mortgage, small business, small farm, and, at the institution's
option, consumer loans throughout the institution's service area,
including the LMI areas. The lending test is weighted more
heavily than the investment and service tests in the institution's
overall CRA rating. * The investment test evaluates an
institution's investment in community development activities. *
The service test requires the examiner to analyze an institution's
system for delivering retail banking services and the extent and
innovativeness of its community development services. In May 1995,
the bank regulators issued the new CRA regulations (the
performance-based CRA regulations).8 For large institutions, the
performance-based CRA regulations became effective on July 1,
1997. Therefore, CRA ratings that FRB relied upon in the six
merger applications we considered were mostly from the previous
process- and paperwork- based system. Most of the bank
subsidiaries of the BHCs we reviewed were national banks regulated
by OCC. The exception was Chemical Bank, which is a state-
chartered bank regulated by FRB and the New York State Banking
Supervisor. HMDA was enacted to provide regulators and the public
with information on home mortgage lending so that both could
determine whether institutions were serving the credit needs of
their communities.9 HMDA was amended in 1989 to include the
collection of data on the race, sex, and income of applicants and
the action taken on the application. Home mortgage lenders that
are required to report are to submit HMDA data files for each loan
application. HMDA reporting requirements first only applied to
banks and their subsidiaries. Over the years, Congress has
expanded HMDA's coverage to include mortgage banking subsidiaries
of bank holding companies and independent mortgage companies that
have assets above a certain level and a home or branch office in a
metropolitan statistical area (MSA). For data collection in 1998,
depository institutions with an office in an MSA are covered if
they had more than $29 million in assets as of December 31, 1997.
Nondepository lenders are covered if they were located in or made
loans in metropolitan areas and had assets of 8 A previous report,
Community Reinvestment Act: Challenges Remain to Successfully
Implement CRA, (GAO/GGD-96-23, Nov. 28, 1995), analyzed CRA and
its implementing regulations. 9 FRB implemented HMDA with its
Regulation C. Page 5
GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
280468 more than $10 million or if they originated 100 or more
home purchase loans in the preceding year. FRB's Regulation BB
describes the data that depository institutions are required to
collect and maintain for CRA purposes. Under revisions of
Regulation BB, depository institutions defined as "large" were
required, beginning in 1996, to collect and report data annually
on the number and dollar amount of their originations and
purchases of small loans to businesses and farms and on any
community development loans. Only independent institutions with
total assets of $250 million or more and institutions of any size
if owned by a holding company that has assets of $1 billion or
more are subject to the data reporting requirements. The Federal
Financial Institutions Examination Council (FFIEC) made the CRA
data on 1996 small business lending available to the public in
October 1997.10 The data on business and farm lending reported
under the CRA regulations are more limited in scope than data
reported on home mortgage lending under HMDA. In particular, the
CRA data include information only on loans originated or
purchased, not on applications that are turned down or withdrawn
by the customer. Also, unlike HMDA data, the CRA data do not
include the income, sex, or racial or ethnic background of
applicants. Finally, again unlike HMDA data, the CRA data are not
reported and disclosed application by application; rather, the
data are aggregated into three loan-size categories and then
reported at the census tract level. To determine FRB's legal
responsibilities for assessing CRA performance, Scope and we
reviewed the BHC Act and CRA, their legislative histories,
regulations Methodology promulgated under each act, and related
published materials. To assess FRB's process for reviewing BHC
merger applications for CRA performance, we used a case study
approach. We selected, on the basis of the assets of the acquired
BHC, the two largest BHC mergers in 1995, the single largest BHC
merger in 1996 and again in 1997, and the two largest BHC mergers
in 1998.11 We reviewed the CRA public evaluation reports of the
lead bank subsidiaries of the BHCs included in our case studies,
internal FRB memorandums and analyses conducted in conjunction
with the six merger applications, orders publicly issued by the
Board of Governors containing approval of each merger, public
comment letters, 10 The member agencies of FFIEC include OCC,
FDIC, OTS, FRB, and the National Credit Union Administration. For
HMDArelated matters, the Department of Housing and Urban
Development also participates in FFIEC deliberations. 11 In this
report, we refer to the applicant as the BHC that acquired the
target BHC. We refer to the consummation of the transaction as
the merger. Page 6 GAO/GGD-
99-180 Guidelines for Community Reinvestment Issues B-280468 and
FRB summaries of concerns raised in public comment letters. The
scope of our reported findings on how FRB addressed the principal
public concerns was limited by the confidentiality of particular
FRB analyses and conclusions. FRB's process for the six mergers in
our study cannot be generalized to all large BHC mergers because
of the small sample size (i.e., six mergers) and the judgment
involved in selecting the sample. We focused on FRB's BHC merger
application process in reviewing the six mergers. We did not
assess the quality of previous CRA examinations conducted by
primary banking regulators or the accuracy of public comments. We
also did not verify the accuracy of data and other inputs relied
upon by FRB in its review of the six merger applications. To
address the third objective on premerger and postmerger home
mortgage lending for three of the six mergers completed in 1995
and 1996, we obtained and analyzed HMDA data. We did not verify
the accuracy of the HMDA data. In addressing our three objectives,
we interviewed officials from FRB, the Federal Reserve Bank of New
York, OCC, the Office of New York State's Supervisor of Banking,
the BHCs included in our case studies, the American Bankers'
Association, the Consumer Bankers' Association, and a selected
number of community groups submitting public comments in
opposition to the mergers included in our case studies. We also
reviewed relevant published literature on CRA, home mortgage
lending, and the use of HMDA data. Appendix I provides a more
detailed discussion of our scope and methodology. We conducted our
work in Charlotte, NC; Chicago, IL; New York, NY; and Washington,
D.C., between June 1998 and August 1999 in accordance with
generally accepted government auditing standards. We requested
comments on a draft of this report from FRB and OCC. FRB's and
OCC's written comments are discussed near the end of this letter
and are reprinted in appendixes VI and VII, respectively. In
addition, we provided Bank One, Chase Manhattan, and Fleet the
section of our draft report from our HMDA analysis on their
respective institutions. We incorporated their technical comments
where appropriate. Page 7 GAO/GGD-99-180 Guidelines
for Community Reinvestment Issues B-280468 In acting on a BHC
merger application, FRB must consider the Guidance Has Not
convenience and needs of the community to be served under the BHC
Act Been Developed for and take into account the
records of the relevant depository institutions under CRA.
Neither the BHC Act nor CRA, or their legislative histories,
Implementing the BHC provide guidance on how FRB is to take into
account the convenience and Act and CRA in the
needs of the community when considering a BHC merger application.
The BHC Merger federal regulators,
including FRB, have developed guidance on how to Application
Process assess a depository institution's CRA
performance. However, FRB has not developed guidance on how it
will evaluate the CRA record, comprising the regulators' ratings
of institutions' CRA performance and comments from the public, for
large BHC merger applications. Under the BHC Act, FRB is required
to review the bank holding company's The BHC Act Calls for
merger application for the convenience and needs of the
communities to FRB's Review of Impacts on be served. FRB has
defined convenience and needs to relate to the effect Convenience
and Needs of a proposal on the availability and
quality of banking services in a community. FRB considers
convenience and needs as including the record of CRA performance.
The requirement to consider the convenience and needs of the
community has been included as part of the BHC Act since its
original enactment in 1956. In the 1970s, Congress increased the
need for depository institutions to focus on the convenience and
needs of local communities when it passed CRA. CRA was passed in
response to a national concern over redlining12 practices. CRA
requires federal regulators, including FRB, to take into account
the CRA record of the applicant in their evaluation of an
application related to a deposit facility. CRA defines
applications to include (1) applications to establish or relocate
a branch or home office and (2) applications for mergers,
consolidations, or the purchase of assets or assumption of
liabilities of a regulated financial institution. Nonbank
subsidiaries of BHCs are not subject to CRA. However, CRA
regulations allow bank subsidiaries of BHCs to receive CRA credit
for home mortgage loans originated by affiliated nonbank
subsidiaries in the delineated areas of the bank subsidiaries. 12
Redlining is a refusal of lenders to make loans in certain
geographic areas, typically minority or low- income neighborhoods,
regardless of the creditworthiness of the loan applicant. Page 8
GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
280468 The federal depository institution regulators, including
FRB, have Federal Bank Regulators developed guidance, using
rulemaking and additional efforts, on how CRA Have Developed
Guidance performance should be considered during the
applications process for for Assessing CRA depository
institutions. In 1989, the federal bank regulators published The
Performance During the Statement of the Federal Financial
Supervisory Agencies Regarding the Community Reinvestment Act (the
Statement). The Statement was Application Process for
designed to provide federally insured financial institutions and
the public Depository Institutions with guidance regarding
the requirements of CRA and the policies and procedures the
agencies will apply during the depository institution application
process. After the performance-based CRA regulations were issued
in 1995, FFIEC published Interagency Questions and Answers
Regarding Community Reinvestment in 1997 and 1999. The 1989
Statement was withdrawn effective April 5, 1999, and replaced by
the Interagency Questions and Answers Regarding Community
Reinvestment.13 The 1989 Statement, which was in effect during the
mergers contained in our study, included guidance on the following
issues: * the basic components of an effective CRA policy, * the
role of examination reports on CRA performance in reviewing
applications, * the need for periodic review and documentation by
financial institutions of their CRA performance, and * the role
of commitments in assessing an institution's performance. Most
notably, the regulators concluded in the Statement that the CRA
record of the institution, as reflected in its examination
reports, would be given great weight in the application process.
In the Interagency Questions and Answers for 1999, the regulators
continued to stress the significance of the CRA examination in the
application process, and they stated that the examination is an
important, and often controlling, factor in the consideration of
an institution's record.14 In addition to the CRA examination, the
regulators have consistently underscored the importance of public
comments to the applications process. According to the 1989
Statement, the CRA examination is not conclusive evidence in the
face of significant and supported allegations from a commenter.
Moreover, the balance may be shifted further when the examination
is not recent or the particular issue raised in the 13 Questions
and Answers Regarding Community Reinvestment, 64 Fed. Reg. 23618-
23648 (1999). 14 64 Fed. Reg. at 23641. Page 9
GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
280468 application proceeding was not addressed in the
examination. During the development of the performance-based CRA
regulations, a number of commenters expressed concern that the
regulators may provide a "safe harbor" to depository institutions
from challenges to their CRA performance record in the application
process if they achieved an outstanding CRA examination rating.
However, in the preamble of the 1995 Final Rule on the CRA
regulations, the regulators reconfirmed the importance of the
public comments in the applications process by acknowledging that
materials relating to CRA performance received during the
applications process can and do provide relevant and valuable
information. For each BHC application submitted, FRB publicly
issues an Order Board Orders Explain BHC containing its
application decision and a discussion supporting its Application
Decisions decision. FRB officials told us that Board
Orders provide a detailed explanation of how the Board arrived at
its decision and puts the facts into the context of the specific
case at hand. In the FRB officials' view, Board Orders provide
guidance on FRB's BHC application process. We reviewed the Board
Orders approving the six BHC merger applications in our study. The
Orders provided insight into issues considered by the Board of
Governors. For example, the Orders discussed FRB's consideration
of CRA performance ratings received by bank subsidiaries, recent
trends in home mortgage lending by the BHCs, and CRA agreements
reached by BHCs with community groups. FRB's treatment of the
various CRA issues appeared to be consistent with that suggested
in the 1989 Statement for assessing CRA performance. The BHC Act
requires FRB's approval for formation of a BHC, BHC FRB Has Not
Developed acquisition of control of another BHC or a
subsidiary bank or bank assets, Additional Guidance on
or the merger of BHCs. There were nearly 6,000 BHCs operating as
of How It Evaluates an year-end 1998; almost 700 BHC
cases of applications were submitted to the Institution's CRA
Federal Reserve for approval in 1998. Of these, over 400 were for
mergers and acquisitions. Consistent with the Statement for
assessing CRA Performance in the BHC performance, FRB
regulations provide that FRB will take into account the Merger
Application Process record of performance under CRA of each
insured bank and thrift controlled by a BHC applicant and each
subsidiary bank proposed to be controlled by an applicant. FRB
officials told us that if an institution was examined recently,
FRB would be more likely to rely on the rating given by the bank's
primary regulator. If the CRA exam is not recent or there have
been significant public comments raising concerns, FRB would be
more likely to undertake a review of the institution's CRA
performance and obtain more information from the primary bank
regulator. FRB considers Page 10 GAO/GGD-99-180
Guidelines for Community Reinvestment Issues B-280468 the CRA
performance of the BHC in the delineated areas of its bank
subsidiaries. Also consistent with the Statement for assessing CRA
performance, FRB regulations require public notice of a BHC
application and a specific public comment period. FRB does not
have written guidelines that summarize how public comments raising
CRA concerns are to be used along with other information in its
BHC merger application decisions. An FRB Associate General
Counsel told us that although the BHC Act does not require a
public comment period, FRB voluntarily adopted the requirement of
a notice, comment, and specific comment period because FRB found
the public process helpful. FRB's Rules of Procedure state that an
applicant must file notice of the application in the classified
advertising legal notices section of the local newspaper. The
notice must state that the public has an opportunity to comment
for at least 30 days after the date of publication.15 Under the
revised Regulation Y, FRB will not accept late written comments
except in extraordinary circumstances. FRB can extend, and has
extended, the 30- day time frame. According to Regulation Y, the
30-day comment period is required for all BHC merger applications
to acquire an insured depository institution whether the
applications are Board Action cases or delegated to the Reserve
Banks for a decision. BHC officials we interviewed told us that
FRB's adherence to the public comment period deadlines was better
than it had been in previous BHC mergers. Relatively few BHC
mergers have been protested on CRA grounds. As shown in table 1,
the number of BHC merger/acquisition cases that received CRA
protests was small during the period of 1995-98.16 In 1998, the
total number of BHC acquisition/merger cases that were protested
on CRA grounds was 18 cases out of 424 BHC merger/acquisition
cases. 15 FRB may, in its discretion, extend the public comment
period and, if a person has requested a copy of a notice or
application, FRB may, in its discretion, grant such person an
extension of the comment period for up to 15 calendar days. 16 We
included data on both BHC acquisitions and mergers. Sections
3(a)(3) and 3(a)(5) of the BHC Act require approval for BHC
acquisitions and mergers, respectively. In an acquisition, the
applicant is a BHC and the target institution may be a BHC or a
bank subsidiary. In a merger, both the applicant and the target
are BHCs. Determining whether a BHC application was an
acquisition or merger depends on how the transaction was
structured. Page 11 GAO/GGD-
99-180 Guidelines for Community Reinvestment Issues B-280468 Table
1: Number of BHC
BHC merger/acquisition cases Merger/Acquisition Cases Receiving
Protested CRA Protests
Percentage of Year
Total Number total cases 1995
386 40 10.4% 1996
359 30 8.4 1997
347 16 4.6 1998
424 18 4.2
aProtested means those BHC mergers/acquisitions in which FRB
received substantive comments regarding a BHC's lending record or
CRA record. Source: FRB. The Statement for assessing CRA
performance does not specifically address issues that arise in BHC
merger application decisions, such as the consideration to be
given to the activities of nonbank subsidiaries. Large BHCs
comprise bank subsidiaries that are subject to CRA operating in
delineated areas and may include nonbank subsidiaries, such as
mortgage lending companies, that are not subject to CRA operating
within and outside of the delineated areas of the bank
subsidiaries. However, CRA regulations allow bank subsidiaries of
BHCs to receive CRA credit for home mortgage loans originated by
their affiliated nonbank subsidiaries in the delineated areas of
the bank subsidiaries. In reviewing the six BHC merger
applications, it appeared to us that FRB FRB's CRA
attempted to balance the CRA performance ratings with information
that Performance Review raised concerns with
the institutions' CRA performance obtained through the public
comment process. All of the bank subsidiaries in our selected
Process for the Six merger cases received a
satisfactory or better CRA rating from their Large BHC Merger
primary federal bank regulator. The four principal CRA concerns
raised in Applications Lacked public comments
were (1) an insufficient amount of home mortgage Transparency
lending in LMI areas, (2) an insufficient amount of small business
lending in LMI areas, (3) expected bank branch closures in LMI
areas, and (4) a lack of specificity in CRA agreements. FRB
appeared to give more weight to CRA performance ratings and
concerns with home mortgage and small business lending than to
other concerns raised. FRB conducted analyses with HMDA and CRA
small business data to address concerns of insufficient home
mortgage and small business lending, respectively. FRB's
consideration of branch closures was generally limited to a
determination of whether the applicant had an adequate branch
closure policy and its past branch closure record. According to
FRB officials, CRA agreements17 did not play a role in FRB's
assessment of the six merger 17There is no consensus among banks
and community groups on a definition of a CRA agreement. CRA
agreements can be called agreements, pledges, or commitments. The
level of involvement by the Page 12
GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
280468 cases. FRB does not have written guidance on how it
considers the sufficiency of home mortgage and small business
lending or what branch closure policy it would consider adequate.
FRB's lack of written guidance on how it addresses public comments
contributed to the concerns voiced by the community groups and BHC
applicants we contacted regarding the lack of transparency in the
merger application process. All of the bank subsidiaries in the
six merger cases received a CRA All of the Bank Subsidiaries
performance rating of satisfactory or better. Over half of the
lead bank Received a Satisfactory subsidiaries owned
by the applicants and the target institutions received Rating or
Better an outstanding CRA rating from their
primary bank regulators. CRA performance ratings for the bank
subsidiaries in our study are presented in appendix II. The CRA
ratings of the bank subsidiaries in our study were similar to the
CRA ratings of their peers. As table 2 shows, all large bank
subsidiaries (assets of $10 billion or greater) examined by OCC
and FRB received either outstanding or satisfactory ratings during
the period of 1995-98. Table 2: The Distribution of CRA
Performance rating Performance Ratings for Large
Needs to Substantial Number Banks
Examined by OCC and FRB, 1995-98
Regulator Outstanding Satisfactory
improve noncompliance of banks OCC
17 9 0
0 26 FRB 12
12 0 0 24
Sources: FRB and OCC. For all BHC mergers, including the six cases
that we reviewed, FRB's Division of Consumer and Community Affairs
(DCCA)18 screened the most recent CRA ratings of both the bank
subsidiaries of the applicant institution and the target
institution. According to FRB officials, this task was a major
component of FRB's review of each merger application. Absent any
ratings issues or CRA allegations, according to DCCA officials,
DCCA generally focuses its CRA examination analysis on the lead
banks of the applicant and the target institution. Since the new
CRA regulations for large banks were not effective until July
1997, almost all of the public evaluation reports on the lead
banks of the BHCs involved in the six BHC community groups and the
level of specificity differentiates the various types of
agreements. In some cases, community groups negotiate with the
banks regarding specific CRA goals to be reached in the community.
These are referred to as negotiated agreements. Another type of
community agreement is a pledge. Generally, banks that make
pledges consider input from community groups, but the bank
unilaterally formulates the final pledge. 18 Among its
responsibilities, DCCA is charged with reviewing bank and bank
holding company applications for CRA and compliance issues. Page
13 GAO/GGD-99-180 Guidelines for
Community Reinvestment Issues B-280468 mergers were completed
under the old process-oriented CRA regulations. According to the
DCCA Manager for Applications, DCCA will do additional analysis on
the CRA records of the applicant and the target institution when
comments regarding the institutions' CRA records are sent. DCCA
was generally dependent on CRA examination information from the
DCCA Was Dependent on other federal bank regulators
for assessing the CRA performance of large CRA Examination
BHCs. In the six merger cases, FRB did not have its own on-site
CRA Information From the Other information on the bank
subsidiaries.19 A federal regulator other than the Federal Bank
Regulators for FRB supervised almost all of the bank subsidiaries
of the BHCs in the six merger cases. Of the six merger cases,
only the lead bank of the Chemical Assessing the CRA
Banking Corporation was supervised by FRB. The lead banks of the
other Performance of Large BHCs 11 BHCs were supervised by OCC.
DCCA staff told us that FRB does not second-guess the CRA
examinations conducted by the other federal bank regulators. The
purpose of FRB's review of the CRA record is not to reexamine the
banks for CRA compliance. We were told by DCCA analysts that after
the initial screening of the CRA ratings, they reviewed the most
recent public evaluation report of the lead bank of the applicant
and the target institution. If the DCCA analyst determined it was
warranted, he or she talked with the OCC CRA compliance examiner.
In three of the five merger cases in which FRB was not the primary
bank regulator of the lead bank of the applicant-Fleet- Shawmut,
NationsBank-BankAmerica, and Bank One-NBD First Chicago, DCCA
analysts contacted OCC for additional supervisory information. FRB
officials told us that additional supervisory information was not
obtained in the NationsBank-Boatmen's merger because the July 1995
CRA examination of NationsBank was relatively current. In two of
the merger cases, NationsBank-BankAmerica and Bank One-NBD First
Chicago, DCCA reviewed CRA information from OCC that was more than
2 years old. During the application review, OCC was examining the
lead banks of both NationsBank and Bank One. In the absence of
recent examinations of the lead banks, DCCA analysts obtained
limited information from OCC's ongoing examinations for these two
cases. According to an OCC official, the implementation of OCC's
new performance-based CRA examination procedures for the 30
largest national banks caused delays in the frequency of
examinations for these institutions. 19 Bank holding companies are
not subject to CRA; therefore, they are not inspected by the
Federal Reserve Banks for CRA compliance performance. Page 14
GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
280468 FRB received public comments addressing a wide variety of
issues, All of the BHC Mergers in including CRA issues,
for all six mergers. The number of comments ranged Our Study Were
Protested from a high of over 1,600 comments for
NationsBank's acquisition of on CRA and Other Issues
BankAmerica to a low of 17 comments for NBD's acquisition of First
Chicago. The number of public comments that FRB received for the
other 4 mergers ranged from about 50 to about 300. For each
merger, the majority of the comments were in support of the
merger. Among the comments in opposition to each of the six
mergers, FRB received public comments criticizing the CRA
performance of either the applicant or the target institution. In
addition to considering written comments, FRB conducted public
meetings for four of the six mergers: (1) Fleet's acquisition of
Shawmut, (2) Chemical's acquisition of Chase, (3) NationsBank's
acquisition of BankAmerica, and (4) Bank One's acquisition of NBD
First Chicago.20 The four principal CRA concerns raised in the six
mergers were (1) an Home Mortgage Lending, insufficient
amount of home mortgage lending in LMI areas, (2) an Small
Business Lending, insufficient amount of small business
lending in LMI areas, (3) expected Branch Closures, and CRA
bank branch closures in LMI areas, and (4) the lack of specificity
in CRA Agreements Were the Four agreements. A summary of
comments raising these concerns for each of the six BHC mergers is
presented in appendix III. Principal CRA Public Concerns in the
Six Mergers Commenters Raised Concerns of For the six mergers,
commenters raised concerns that either the Insufficient Home
Mortgage and applicant's or the target institution's
performance was generally Small Business Lending in LMI
inadequate in providing mortgage lending to minority groups and in
LMI Areas areas. In many cases,
commenters included statistical results from HMDA analysis to help
support their claims of insufficient home mortgage lending. FRB
received comments alleging an insufficient level of small business
and rural lending for two mergers, NationsBank's acquisition of
BankAmerica and Bank One's acquisition of NBD First Chicago.
Comments related to small business lending only affected the later
two BHC mergers because banks were not required to collect small
business data and submit the data to their primary bank regulator
until 1996. 20 FRB has discretion as to whether to provide an
opportunity for formal hearings or allow interested persons to
present their views orally before the Board of Governors. Unless
otherwise ordered, any oral presentation is public and notice of
the public proceeding is published in the Federal Register. Page
15 GAO/GGD-99-180 Guidelines
for Community Reinvestment Issues B-280468 Commenters Raised
Concerns In all six mergers, commenters were concerned with
the number and location of banking branches that would be closed
in LMI areas after the That Branch Closures Would merger and
the resulting impacts on LMI areas. Commenters generally Have a
Negative Impact Upon referred to bank holding company branch
closure practices in previous LMI Areas
mergers to support their claim that the pending mergers would
result in similar closings. For example, during the application
process for Bank One's acquisition of NBD First Chicago, a
community group cited Bank One's closure of branches after its
acquisition of First USA and noted that the branches closed by
Bank One were located in predominantly minority communities and
LMI areas. Commenters Criticized Community groups wanted
CRA agreements that centered on banks' Agreements Reached in Three
establishing, or pledging, specific lending and investment
activities that BHC Mergers serve the banks'
delineated areas, including LMI areas. The community groups we
contacted told us that CRA agreements are beneficial in meeting
the convenience and needs of LMI communities, such as obtaining
affordable mortgage loans or small business loans. Of the six
mergers we reviewed, FRB received comments on the issue of
community agreements or pledges for three BHC mergers: Chemical's
acquisition of Chase, NationsBank's acquisition of BankAmerica,
and Bank One's acquisition of NBD First Chicago. Pledges issued by
Chemical Bank and NationsBank were criticized for lacking specific
lending goals. Chemical Bank issued a pledge for increased lending
and community development funding of $18.1 billion primarily in
New York, New Jersey, Connecticut, and Texas. The goals of the
pledge included loans and investments to assist small businesses,
affordable mortgages, and commercial and economic development.
According to the summary of comments prepared by FRB, commenters
criticized the pledge as inadequate because it was not
enforceable, could not be monitored by community groups, was too
vague to be meaningful, and did not identify the amount of lending
that would be made within specific communities. Before its merger
with BankAmerica, NationsBank made a 10-year pledge of $350
billion, for community development lending and investment. The
comments were similar to those made for Chemical Bank's pledge.
NationsBank's pledge was also criticized for lacking geographic
detail and enforceability. In 1998, before Bank One's acquisition
of NBD First Chicago, a Chicago community group obtained a CRA
commitment from NBD First Chicago and Bank One. The CRA
commitment included, among other features, increased bank lending
to small businesses in Chicago's LMI areas. Page 16
GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
280468 Community groups criticized Bank One for not making
commitments in other areas where Bank One is located. FRB
attempted to address three of the four CRA concerns that were
raised FRB Attempted to Address in public comments. FRB
appeared to give more weight to concerns with Concerns Raised in
Public home mortgage and small business lending than to branch
closure Comments concerns raised. DCCA
conducted analyses of HMDA and CRA small business data to address
concerns of insufficient home mortgage and small business lending
when it became available, respectively. Generally, the
statistical results from DCCA's analyses indicated that the
lending activity in question was sufficient. In situations where
statistical results from DCCA's HMDA analyses indicated that the
lending activity in question may not have been sufficient, FRB
generally emphasized CRA performance ratings and cited limitations
in the use of HMDA statistics. FRB faced limitations in its legal
authority to address branch closure concerns. FRB approved four
of the mergers with conditions for the reporting of branch
closures. According to FRB officials, CRA agreements did not play
a role in FRB's assessment of the six merger cases. For each
merger, DCCA prepared a memorandum to the Board of Governors
containing findings and recommendations. The Board of Governors
accepted DCCA's recommendations for each of the six mergers. FRB
Analyzed HMDA Data to To address the concern of insufficient
home mortgage lending, FRB's Address Home Mortgage DCCA
generated a large number of statistical tabulations using HMDA
Concerns individual loan file data containing
the mortgage lending activity for each BHC across a large number
of geographic areas. DCCA analysts reviewed HMDA data submitted
by commenters, but used their own HMDA data analysis. According
to DCCA analysts, many of the commenters did not include the home
mortgage lending of the nonbank subsidiaries in their analysis. In
its HMDA analysis, DCCA included home lending of nonbank mortgage
subsidiaries in the delineated areas of the bank subsidiaries
because such lending qualifies for CRA credit. Examples of FRB
analysis with HMDA data in response to public comments are
contained in appendix IV. For each merger application, DCCA
produced statistical tabulations for geographic areas where home
mortgage lending concerns were raised. For example, NationsBank's
acquisition of BankAmerica generated a large number of comments
raising concerns in a number of states, counties, and MSAs. For
each geographic area (i.e., a state, county, or MSA) where
concerns of insufficient mortgage lending in LMI areas were
raised, the statistical tabulations were uniformly reported. The
statistical tabulations generated and analyzed by DCCA generally
did not cover subsets of LMI Page 17 GAO/GGD-99-180
Guidelines for Community Reinvestment Issues B-280468 areas. To
respond to comments on these areas, DCCA analysts told us that
they relied on information supplied by the applicant or the
Federal Reserve Bank analyzing the merger. DCCA analyzed the
statistical tabulations and prepared a memorandum for each BHC
application to the Board of Governors. The memorandums focused on
the tabulations that the DCCA analysts thought would be most
useful to the Board. Additional statistics were provided in an
appendix to each memorandum. The Board voted to approve each
merger in our study. Statistics in the memorandum for each BHC
merger application generally emphasized the recent trends in
mortgage applications from the LMI areas and minority group
applicants referenced in the comment letters. In most cases where
public concerns of insufficient mortgage lending were raised, the
statistical tabulations within the memorandum indicated that
applications from LMI areas and the referenced minority group's
applicants increased in the most recent 2- to 3-year period before
the merger application.21 In situations where statistical results
from FRB's HMDA analyses appeared to indicate that the lending
activity in question may not have been sufficient, FRB tended to
emphasize CRA performance ratings and cited limitations in the use
of HMDA statistics. There are other measures of mortgage loan
sufficiency that were not contained in the memorandums. In
particular, DCCA analysts calculated the portfolio share22 of a
BHC's total mortgage originations in the relevant state, county,
or MSA accounted for by mortgage originations from LMI census
tracts and applicants classified with reference to a particular
minority group. The portfolio shares for all institutions
originating mortgages in the relevant state, county, or MSA were
also generated by DCCA. This statistic can be considered a
benchmark to which each BHC's portfolio share could be compared.
Examples of these statistics are included in appendix IV when we
refer to all institutions in the six tables. Generally, the BHCs'
portfolio shares were similar to or exceeded the corresponding
portfolio share for all institutions.23 21 Examples of the
application statistics are included in the six tables in appendix
IV. 22 Portfolio share is defined as the total number of loan
originations for a given institution in the census tracts being
analyzed divided by the total number of loans originated by the
institution in the metropolitan area. 23 The one exception
occurred in the case of public concerns raised in NationsBank's
acquisition of BankAmerica with respect to mortgage lending to
Hispanics in Texas. The percentage of NationsBank mortgage
originations in Texas to Hispanic applicants declined in 1996 and
1997. In both years, Page 18
GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
280468 Generally, the statistical results from DCCA's analyses
indicated that the lending activity in question was sufficient.
Therefore, the Board generally found that the commenters' concerns
were not supported by DCCA's HMDA analysis and the institution's
CRA record. Most of the comments that raised concerns of
insufficient mortgage lending were directed toward delineated
areas of the BHCs' bank subsidiaries subject to CRA. However,
comments were received that raised such concerns for nonbank
mortgage lending subsidiaries outside of the delineated areas of
the BHCs' bank subsidiaries. For example, 1 comment on Chemical's
acquisition of Chase stated that Chase did not make substantial
loans to applicants from LMI communities in 15 MSAs, many of which
were not included in the delineated areas of Chase's bank
subsidiaries. We identified one commenter who made this general
comment for numerous BHC mergers. He told us that FRB has a
responsibility to address such comments because the BHC Act, which
governs the bank and nonbank subsidiaries of a BHC, calls upon FRB
to assess the impacts of the BHC merger on convenience and needs.
FRB responded to this general comment by stating that nonbank
subsidiaries of BHCs are not subject to CRA and their lending is
only relevant in the delineated areas of the bank subsidiaries.
According to a DCCA analyst, the purpose of CRA is to encourage
the bank to make loans where it is collecting deposits. FRB
Analyzed Small Business In Bank One's 1998 acquisition of
NBD First Chicago, a Wisconsin Data to Address Small Business
community group stated that the majority of Bank One's small
business Lending Concerns lending was targeted to
larger businesses, and that the bank's volume of small farm loans
was low. In addition to requesting that Bank One respond to this
criticism, the DCCA analyst performed her own analysis of Bank
One's small business lending. In NationsBank's 1998 acquisition
of BankAmerica, FRB assessed small business lending and small farm
lending in seven states. In this case, the DCCA analyst performed
analysis of NationsBank's small business lending. FRB did not
find a basis for concern in either case. FRB Faces Limitations in
The availability of bank services and offices after a merger is
one of the Addressing Branch Closure factors to be
considered by FRB in assessing the effect of the merger on
Concerns convenience and needs.
According to FRB officials, if preliminary branch closure
information is received, DCCA reviews the information to determine
if any of the proposed closures are in LMI areas and, if so, asks
NationsBank's portfolio share was less than the corresponding
portfolio share for all institutions (see table 5 in app. IV).
Page 19 GAO/GGD-99-180 Guidelines
for Community Reinvestment Issues B-280468 the reason for the
closures, the proximity of the receiving branch, and what actions
the applicant plans to take to mitigate the impact on that
community. The officials stated that they undertook such an
analysis on the Chemical-Chase merger application. The law does
not provide the regulators with the authority to prohibit banks
from closing a branch. If the applicant has not developed final
plans for branch closings, FRB's consideration of branch closures
is limited to a determination of whether the applicant has an
adequate branch closure policy, and any branch closings that do
occur can only be assessed in future CRA examinations and BHC
merger applications. 24 Branch closures could affect a bank's
subsequent CRA performance rating if the closures were associated
with a decline in lending, investment, or services in the bank's
delineated areas. The Board of Governors placed a branch closure
reporting requirement on four of the BHC mergers as a condition
for approval.25 According to FRB officials, when a branch closure
reporting requirement is placed on an applicant, a message is sent
to the applicant that the Board is interested in such plans and
will be reviewing the closures associated with the application in
the context of future applications. Because FRB cannot prohibit
banks from closing branches, it is unclear what effect the
conditional approvals would have on the number of branch closings
in LMI areas. Depository institution regulators do not have the
legal authority to prohibit banks from closing a branch. Insured
banks and thrifts must post notice to the public at least 30 days
before closing a branch and provide their regulators with at least
a 90-day notice. Under performance criteria of the CRA
examination's Service Test, the regulators are to review the
bank's (1) distribution of branches among low-, moderate-, middle-
, and upper- income areas and (2) record of closing and opening
branches, particularly in LMI areas. However, if a bank can
demonstrate to the examiner that retail banking services can be
provided to LMI areas through alternative systems, such as
automated teller machines, telephone banking, or mobile banking,
the bank can receive credit under the Service Test without the
brick and mortar of a branch. 24 The 1989 Statement points to an
institution's adoption of "a written corporate policy concerning
branch closings which contains provisions for appropriate notice,
analysis of the impact of the closing on the local community, and
efforts that may be made to minimize any adverse effects" as a
step taken by institutions with the most effective programs for
meeting their CRA responsibilities. 25 Under Regulation Y, the
Board of Governors may impose conditions on any approval,
including conditions to address competitive, financial,
managerial, safety and soundness, convenience and needs,
compliance, or other concerns to ensure that approval is
consistent with the relevant statutory factors and other
provisions of the BHC Act. Page 20
GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
280468 In four of the six merger cases, the Board of Governors
placed a reporting requirement regarding branch closures as a
condition for approval. The four mergers were Fleet's acquisition
of Shawmut, NationsBank's acquisition of Boatmen's, NationsBank's
acquisition of BankAmerica, and Bank One's acquisition of NBD
First Chicago. For each of the four mergers, the Board of
Governors required the applicant to provide the Federal Reserve
System with periodic reports on the number of branch closings26
resulting from the merger and to show how it planned to minimize
the impact of these closings on LMI areas. According to the DCCA
Manager for Applications, applicants are not required to submit
branch closure plans as part of the application. However, the
Board of Governors generally orders branch closure reports from
those applicants who have not submitted branch closure plans
during the application process. Except for Fleet Financial Group,
none of the four, who were required to submit reports, had
submitted a branch closure plan. Because FRB cannot prohibit banks
from closing branches, it cannot directly affect branch closures
in designated areas. Branch closures in LMI areas, however, could
potentially affect future CRA performance ratings. In addition,
FRB officials told us that the applicant may apply for merger
again in the future. For example, the DCCA analyst, who reviewed
the NationsBank-BankAmerica merger, told us that they considered
NationsBank branch closures subsequent to its acquisition of
Boatmen's in approving its merger with BankAmerica. CRA Agreements
Did Not Play a According to FRB officials, CRA agreements did
not play a role in FRB's Role in FRB's Assessment of the
assessment of the merger application. This view is supported by
Six Merger Cases statements in the Board's
Orders. Using the 1989 Statement as its basis, FRB considers CRA
agreements as private agreements between the banks and the
community groups. DCCA officials told us that CRA does not
provide the regulators with the enforcement authority to assess a
bank's compliance with CRA agreements. Pledges were not
considered either. DCCA staff said they did not consider the
pledges of Chemical Bank and NationsBank or the commitment
negotiated by NBD First Chicago when developing their
recommendations to the Board of Governors. BHC officials and
community groups we interviewed had opposing views on whether FRB
should consider the agreements during the application 26 In many
cases, a branch closed from a merger may be technically a
consolidation. A consolidation is considered a relocation if the
branch is located within the same neighborhood and the nature of
the business or customers served is not affected. In less densely
populated areas, where neighborhoods extend farther and a long
move would not significantly affect the nature of the business or
the customers served by the branch, a relocation may occur over
substantially longer distances. Page 21
GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
280468 process. The BHC officials we interviewed supported the
position that regulators should not consider CRA agreements as
part of the institutions' CRA record. We were told by community
development officials at two BHCs that the CRA agreements are
significant in terms of external relations for the BHC with its
communities. According to these officials, the primary purpose of
the commitments and pledges was not to influence the regulatory
process, since FRB does not consider the agreements of the
applicant as a part of its analysis of the applicant's CRA record.
Alternatively, community groups we interviewed want FRB to
consider the banks' compliance with those agreements as part of
its assessment of the applicant's CRA record. The BHC Merger
Application FRB's lack of written guidance for how it addresses
public comments Process Lacks Transparency contributed to the
concerns voiced by some community groups and two BHCs regarding
the lack of transparency in the merger application process.
Several of the community groups who submitted comments told us
that they did not understand the process by which FRB approved the
six BHC mergers and how FRB considered their public comments
raising concerns. The community group officials told us that FRB
does not have written criteria for how it assesses merger
applications, and FRB did not explain its process when community
groups met with FRB officials. Some of the officials told us that
while FRB conducted HMDA analysis, it did not criticize the
applicant's lending performance on the basis of the analysis. Two
BHC community development officials told us that they did not
understand why they needed to provide the Federal Reserve with
redundant information when they had established good CRA records.
One BHC official stated that if a bank has been examined for CRA,
why should the Federal Reserve have to reexamine the bank. The
banking official's perception of FRB's CRA review was different
from that of FRB officials who do not consider their review
process to be a reexamination of the bank's CRA performance. The
BHC officials told us that during the application process, FRB
will ask for redundant information. According to the officials,
even if FRB has requested information from the applicant on a
particular issue, it would request the same information again from
the applicant if it subsequently received comment letters on the
same issue. Commenters who raised concerns often expressed
judgments that were critical of the BHC applicant, the BHC to be
acquired, and the bank and nonbank subsidiaries of the BHCs. The
merging BHCs have a business interest in completing the merger in
a timely manner with minimal disruption to their future
consolidation efforts. Therefore, the implications Page 22
GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
280468 of FRB's actions are of major importance to the parties
involved in this process. By analyzing three large BHC mergers
using appropriate statistical Bank Merger Activity
measures and benchmarks for lending performance, we found that
after Was Not Associated none of the three mergers
was there a disproportionate decline in single- family home
mortgage lending to minority and LMI census tracts.27 NBD With
Adverse Change Bancorp's acquisition of First
Chicago was associated with fairly stable in Mortgage Lending in
market share of loans in LMI and minority census tracts in the
Chicago Minority and LMI MSA. Fleet Financial
Group's acquisition of Shawmut National Bank was Areas for Three
BHC associated with a decline in Fleet's market
share in minority and LMI Mergers
census tracts that mirrored Fleet's decline in overall market
share in the Boston MSA. Chemical Bank's acquisition of Chase
Manhattan Bank was associated with increased market and portfolio
share lending in minority and LMI census tracts in 1997, as
compared to the combined lending by the two competing institutions
in 1995. Using HMDA data for each institution, we constructed and
analyzed its Our Statistical Results Were market share of loan
originations and the distribution of originations Generally
Consistent Using (portfolio share) across specified
geographic areas. Our statistical results Alternative Measures of
using two measures, one for conventional loans and one for all
loans, were Home Mortgage Lending generally
consistent with one another.28 For each universe of home mortgage
lending used, we calculated the market share of loan originations
Performance in LMI, minority census tracts,
and all census tracts that made up the MSA. We also calculated the
portfolio share of loan originations in LMI and minority census
tracts by the combined BHC. The market share of loan originations
is defined as the number of loan originations for a given
institution divided by the number of loan originations by all
lenders in the census tracts being analyzed. Portfolio share is
defined as the number of loan originations for a given institution
in the LMI and minority census tracts being analyzed divided by
the number of loans originated by the institution in the MSA. The
lending of both BHCs before the merger and the lending of the
combined BHC after the merger were included in our market and
portfolio share measures. In addition, the market share of loan
originations by both BHCs in all census tracts in the MSA was used
as a benchmark in assessing market share changes in LMI and
minority census tracts. 27 We defined a minority census tract as
one where members of minority groups comprise 20 percent or more
of the census tract's households. We defined a LMI census tract as
one where median family income for the census tract did not exceed
80 percent of the median family income for the MSA. HMDA data are
the source for all lending measures. 28 Our statistical results
using a broader universe of all single-family home mortgage
lending are presented in appendix V. Page 23
GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
280468 Our statistical results were also generally consistent
using two different universes of home mortgage lending, (1)
conventional, single-family home purchase loan originations and
(2) all single-family mortgage loan originations. A conventional,
single-family home purchase mortgage loan is defined as a single-
family mortgage loan that is not insured or guaranteed by the
federal government, and that is for the purpose of financing the
purchase of a home. For each merger, we analyzed market and
portfolio shares for the years beginning 1 year before the
acquisition through the 2nd year after the acquisition was
completed. For the three case studies used here, the market
corresponded to the MSA where the acquired BHC's lead banking
subsidiary is located. The resulting MSAs were Chicago, Boston,
and New York for NBD's acquisition of First Chicago, Fleet's
acquisition of Shawmut, and Chemical's acquisition of Chase,
respectively. As shown in table 3, NBD's 1995 acquisition of First
Chicago is associated NBD First Chicago Bank
with fairly stable market share in the Chicago MSA and a slight
increase in Merger Showed Fairly market share
in both LMI and minority census tracts. For conventional, Stable
LMI and Minority single-family home purchase
loans, the market shares for both LMI and Lending
minority census tracts increased from 1994-97. Portfolio shares
rose slightly for conventional home purchase loan originations in
LMI and minority communities. The overall increase in
conventional, single-family home purchase loan originations for
the Chicago MSA was modest in magnitude during the period of 1994-
97. Table 3: Market and Portfolio Shares
Bank holding company for NBD/First Chicago Bank Holding
NBD/First Chicago NBD Companies for Conventional,
Single- Family Home Purchase Loan Market or
portfolio share 1994 1995
1996 1997 Originations in the Chicago MSA
Market share of loan origination for 4.6%
6.2% 5.0% 5.5% Chicago MSA Market share of census
tracts that were: LMI
5.3 5.9 5.7 6.3 Minority
5.4 6.2 5.4 6.4 Portfolio share of census
tracts that were: LMI
11.0 10.4 10.9 12.6 Minority
26.9 24.0 24.5 28.2 Source: HMDA data.
Fleet's 1995 acquisition of Shawmut National Bank is associated
with a Fleet Merger Had Reduction reduction in mortgage lending to
LMI and minority census tracts that in Lending in LMI and
mirrored Fleet's overall reduction in mortgage lending for the
Boston MSA. Minority Areas That According to
Fleet Financial Group officials, over the period of 1994-97,
Mirrored Its Reduction in the Boston MSA
experienced a significant influx of mortgage lenders that resulted
in competitive pressures and a subsequent reduction in residential
the Overall Market mortgage lending among
existing lenders in that market. As shown in table Page 24
GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
280468 4, market share statistics for conventional, single-family
home purchase loan originations indicated large declines for both
LMI and minority census tracts as well as overall in the Boston
MSA. Portfolio shares only declined slightly. Table 4: Market and
Portfolio Shares
Bank holding company for Fleet/Shawmut Bank Holding
Fleet/Shawmut Fleet Company for Conventional,
Single- Family Home Purchase Loan Market or
portfolio share 1994 1995
1996 1997 Originations in the Boston MSA Market
share of loan origination for Boston 9.2%
11.5% 6.1% 4.3% MSA Market share of census tracts
that were: LMI
26.3 27.1 14.7 10.2 Minority
32.8 32.7 17.2 11.6 Portfolio share of
census tracts that were: LMI
34.4 32.3 33.2 32.6 Minority
27.1 25.7 25.3 24.5 Source: HMDA data. As
shown in table 5, Chemical Bank's 1996 acquisition of Chase
Manhattan Chase Manhattan Bank Bank is
associated with increased market and portfolio shares of loan
Merger Showed an Increase originations in LMI census tracts.
Market and portfolio shares in minority in LMI and Minority
Lending census tracts were fairly stable. Table 5: Market and
Portfolio Shares
Bank holding company for Chemical/Chase Manhattan Bank
Chemical/Chase Chase Holding Companies for
Conventional, Single-Family Home Purchase Loan Market or
portfolio share 1995 1996
1997 1998 Originations in the New York City MSA Market
share of loan origination for New 14.3% 13.8%
14.4% a York City MSA Market share of census
tracts that were: LMI
10.6 11.8 18.2 a Minority
13.0 12.8 14.4 a Portfolio share
of census tracts that were: LMI
6.4 6.2 10.0 9.9% Minority
39.0 37.9 40.4 41.7 aFRB provided us
with 1998 HMDA data that allowed us to calculate portfolio, but
not market share measures of lending performance. Source: HMDA
data. In acting on a BHC merger application, FRB must consider the
Conclusions convenience and needs of
the community to be served under the BHC Act and take into account
the CRA records of the relevant banks. FRB's Regulation Y,
promulgated under the BHC Act, requires public notice of a BHC
application and a specific public comment period. FRB said it
voluntarily adopted the requirement of notice, comment, and
specific comment period because it found the public process
helpful. Page 25 GAO/GGD-99-180 Guidelines
for Community Reinvestment Issues B-280468 In the six BHC merger
applications that we reviewed, it appeared to us that FRB
attempted to balance the CRA performance ratings of the bank
subsidiaries of the merging BHCs with information presented
through public comments that raised concerns with the
institutions' CRA records. Both the BHC applicants and the
community groups raising CRA concerns lacked relevant information
on how FRB analyzes an institution's CRA record. The implications
of FRB's actions are of major importance to the parties involved
in the BHC merger application process. The merging BHCs have a
business interest in completing the merger in a timely manner with
minimal disruption of their future consolidation efforts. The
community groups that submit comments on large BHC mergers have an
interest in ensuring that specific community credit issues are
being addressed. A more transparent process is needed regarding
how FRB balances the CRA ratings of banks, particularly those with
good CRA ratings, such as the banks in our study, with public
comments raising CRA concerns. A more transparent process could
be useful for both BHC applicants and public commenters. Enhanced
transparency could improve the BHC applicants' understanding of
what information is expected of them, what role public comments
play in FRB's CRA review, and what information FRB focuses on in
response to different CRA concerns. In addition, a more
transparent process may contribute to more focused public comments
from community organizations and provide commenters with knowledge
of how FRB analyzes an institution's CRA record, such as its home
mortgage lending performance. To enhance the transparency and
improve the efficiency with which CRA Recommendation concerns
are addressed in the BHC merger application process, we recommend
that FRB develop written guidelines that summarize how public
comments raising CRA concerns are used with CRA examination
information in FRB's merger application decisions for large BHCs.
For example, such guidelines could summarize important conclusions
from previous Board of Governors application decisions. Such
guidelines could also include when and how concerns raised in
public comments will be considered, the types of analyses FRB is
likely to conduct and rely upon in reaching its conclusions, and
the situations in which HMDA statistics are limited. We received
written comments on a draft of this report from FRB that are
Agency Comments reprinted in appendix VI. FRB generally agreed
with our recommendation that it develop written guidelines to
enhance the transparency of the process. The letter stated that
FRB will consider how best to convey Page 26
GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
280468 useful information focusing on the CRA aspects of the
application process and discussed information that could be
included in an FRB guide to the process. In addition, FRB
provided technical comments, which we have incorporated where
appropriate. We received written comments on a draft of this
report from OCC that are reprinted in appendix VII. OCC also
provided technical comments, which we have incorporated where
appropriate. We are sending copies of this report to Senator Phil
Gramm and Senator Paul Sarbanes and to Representative Barney
Frank, Representative John LaFalce, Representative Rick Lazio,
Representative Jim Leach, Representative Marge Roukema, and
Representative Bruce Vento in their capacities as Chair or Ranking
Minority Member of Senate and House Committees and Subcommittees.
We are also sending copies of this report to the Honorable Alan
Greenspan, Chairman of the Board of Governors of the Federal
Reserve System; the Honorable John Hawke, Comptroller of the
Currency; and others upon request. Please call me or Bill Shear,
Assistant Director, at (202) 512-8678 if you or your staffs have
any questions concerning this report. Key contributors to this
report are acknowledged in appendix VIII. Thomas J. McCool
Director, Financial Institutions and Markets Issues Page 27
GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
Contents 1 Letter 34 Appendix I FRB's Legal
Responsibilities
34 Scope and FRB's Process for Reviewing BHC
Merger Applications 34 Premerger and
Postmerger Home Mortgage Lending 35
Methodology 37 Appendix II NBD's Acquisition of
First Chicago 37
Premerger Bank Fleet's Acquisition of Shawmut
38 Chemical's Acquisition of Chase Manhattan
39 Subsidiary CRA NationsBank's Acquisition of
Boatmen's Bancshares 40 Performance
Ratings NationsBank's Acquisition of BankAmerica
43 Bank One's Acquisition of NBD First Chicago
44 46 Appendix III NBD's Acquisition of First
Chicago 46 Discussion of
Principal Fleet's Acquisition of Shawmut
46 Chemical's Acquisition of Chase Manhattan
46 CRA Concerns Raised NationsBank's Acquisition of
Boatmen's Bancshares 46 by Commenters
NationsBank's Acquisition of BankAmerica
47 Bank One's Acquisition of NBD First Chicago
47 48 Appendix IV Examples of FRB Analysis of HMDA Data in
Response to Public Concerns 51 Appendix V NBD
First Chicago Bank Merger Shows Fairly Stable LMI
51 BHC Mergers and and Minority Lending Fleet
Merger Had Reduction in Lending in LMI and
51 Lending in Minority Minority Areas That Mirrored Its
Reduction in the and Low- and Overall Market
Chase Manhattan Bank Merger Shows an Increase in LMI
52 Moderate-Income and Minority Lending Areas Page
28 GAO/GGD-99-180 Guidelines for Community
Reinvestment Issues Contents 53 Appendix VI Comments From the
Federal Reserve Board 54 Appendix VII Comments From the Office of
the Comptroller of the Currency 55 Appendix VIII GAO Contacts and
Staff Acknowledgments Table 1: Number of BHC Merger/Acquisition
Cases 12 Tables
Receiving CRA Protests Table 2: The Distribution of CRA
Performance Ratings 13 for Large Banks
Examined by OCC and FRB, 1995-98 Table 3: Market and Portfolio
Shares for NBD/First 24 Chicago Bank
Holding Companies for Conventional, Single-Family Home Purchase
Loan Originations in the Chicago MSA Table 4: Market and
Portfolio Shares for Fleet/Shawmut 25 Bank
Holding Company for Conventional, Single- Family Home Purchase
Loan Originations in the Boston MSA Table 5: Market and Portfolio
Shares for Chemical/Chase 25 Manhattan Bank
Holding Companies for Conventional, Single-Family Home Purchase
Loan Originations in the New York City MSA Table II.1: NBD
Corporation Premerger CRA Ratings 37
Table II.2: First Chicago Corporation Premerger CRA
37 Ratings Table II.3: Fleet Financial Group Premerger CRA
Ratings 38 Table II.4: Shawmut National
Corporation Premerger 38 CRA Ratings Page
29 GAO/GGD-99-180 Guidelines for Community
Reinvestment Issues Contents Table II.5: Chemical Banking
Corporation Premerger 39 CRA Ratings
Table II.6: Chase Manhattan Corporation Premerger CRA
39 Ratings Table II.7: NationsBank Corporation Premerger CRA
40 Ratings Table II.8: Boatmen's Bancshares Premerger CRA
41 Ratings Table II.9: NationsBank Corporation Premerger CRA
43 Ratings Table II.10: BankAmerica Corporation Premerger CRA
43 Ratings Table II.11: Bank One Corporation Premerger CRA
44 Ratings Table II.12: First Chicago NBD Corporation Premerger
45 CRA Ratings Table IV.1: HMDA Statistics Generated in Response
to 48 Public Concerns Raised in NBD's
Acquisition of First Chicago Table IV.2: HMDA Statistics Generated
in Response to 49 Public Concerns Raised
in Fleet's Acquisition of Shawmut Table IV.3: HMDA Statistics
Generated in Response to 49 Public
Concerns Raised in Chemical's Acquisition of Chase Table IV.4:
HMDA Statistics Generated in Response to
49 Public Concerns Raised in NationsBank Acquisition of Boatmen's
Table IV.5: HMDA Statistics Generated in Response to
50 Public Concerns Raised in NationsBank's Acquisition of Bank
America Table IV.6: HMDA Statistics Generated in Response to
50 Public Concerns Raised in Bank One's Acquisition of NBD First
Chicago Table V.1: Market and Portfolio Shares for First
51 Chicago/NBD Bank Holding Companies for All Single- Family
Mortgage Loan Originations in the Chicago MSA Table V.2: Market
and Portfolio Shares for Fleet/Shawmut 52
Bank Holding Company for All Single-Family Mortgage Loan
Originations in the Boston MSA Page 30 GAO/GGD-99-
180 Guidelines for Community Reinvestment Issues Contents Table
V.3: Market and Portfolio Shares for
52 Chemical/Chase Manhattan Bank Holding Companies for All Single-
Family Mortgage Loan Originations in the New York City MSA Page 31
GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
Contents Abbreviations BHC bank holding company CRA
Community Reinvestment Act DCCA Division of Consumer and
Community Affairs FDIC Federal Deposit Insurance
Corporation FFIEC Federal Financial Institutions Examination
Council FRB Federal Reserve Board HMDA Home
Mortgage Disclosure Act of 1975 LMI low- and moderate-
income MSA metropolitan statistical area OCC
Office of the Comptroller of the Currency OTS Office of
Thrift Supervision Page 32 GAO/GGD-99-180 Guidelines
for Community Reinvestment Issues Page 33 GAO/GGD-99-180
Guidelines for Community Reinvestment Issues Appendix I Scope and
Methodology To provide a more detailed description of our scope
and methodology, this appendix supplements our discussion
contained in the letter of this report. Our legal analysis
included a review of the Bank Holding Company Act of FRB's Legal
1956 (BHC Act) and the Community Reinvestment Act of 1977 (CRA).
Responsibilities Included in this review was our
analysis of statutory amendments to the BHC Act and court
decisions addressing the convenience and needs factor in the BHC
Act. To identify the principal CRA comments submitted to the
Federal Reserve FRB's Process for Board (FRB) on each
of the six mergers, we reviewed summaries of Reviewing BHC Merger
comments prepared by FRB's Legal Division and the Division of
Consumer and Community Affairs (DCCA). The Legal Division wrote
summaries for Applications four merger
applications-Fleet Financial Group's acquisition of Shawmut
National Corporation, Chemical Banking Corporation's acquisition
of Chase Manhattan Corporation, NationsBank Corporation's
acquisition of BankAmerica Corporation, and Bank One Corporation's
acquisition of NBD First Chicago Corporation. To verify the
completeness of the Legal Division's and DCCA's summaries, we
developed a data collection instrument, took a sample of comment
letters from Chemical's acquisition of Chase Manhattan and
NationsBank's acquisition of BankAmerica and compared our data
with the written summaries. From our sampling of these comment
letters, we determined that the Legal Division's and DCCA's
summaries of public comments were accurate. We focused our
attention on public comments addressing CRA performance measures.
We did not analyze comments raising employment, safety and
soundness, or competitive issues. We also did not analyze
comments raising personal complaints (e.g., "I did not receive a
loan") or managerial issues if they were not directly tied to CRA
performance. We did not assess the validity of the public
comments or verify the accuracy of data submitted with the
comments. We also did not verify the accuracy of the data FRB
relied upon in its response to public concerns. To identify how
FRB addressed the principal CRA comments for the six mergers in
our case study, we reviewed DCCA's internal memorandums and
supporting documentation submitted to the Board of Governors and
the Board of Governors' Orders approving the mergers. We also
interviewed officials from DCCA and the Legal Division and
officials from the Federal Reserve Bank of New York. Specifically
for DCCA, we interviewed the Manager of Applications in DCCA and
each analyst who was responsible for assessing the CRA performance
of the six mergers. We interviewed officials from Bank America
Corporation, Bank One, Chase Manhattan Corporation, and Fleet
Financial Group. We also Page 34 GAO/GGD-99-180
Guidelines for Community Reinvestment Issues Appendix I Scope and
Methodology interviewed a number of community groups that
submitted comments or testified in public meetings on the bank
holding company (BHC) merger applications included in our case
studies. To identify how FRB used Home Mortgage Disclosure Act of
1975 (HMDA) analysis to address public concerns, we specified the
relevant geographic areas at the state, county, or metropolitan
statistical area level of aggregation. We obtained selected
reproductions of FRB analyses conducted in response to the
principal public concerns raised. FRB officials told us that for
some of the older mergers, they had not retained computer-
generated output or documentation of the computer programs used to
produce the output at the time of the merger application. FRB
officials told us that it would be difficult and costly to
reconstruct and reproduce the delineated areas for the bank
subsidiaries of each BHC at the time of the merger application.
FRB officials told us that the statistical tabulations they
supplied to us would likely correspond closely to the statistical
results obtained when the merger application was being processed
at FRB. We did not analyze FRB's analysis of CRA small business
loan file data to address public concerns of insufficient small
business lending. To determine the premerger and postmerger
mortgage lending in low- and Premerger and moderate-income
(LMI) and minority communities for three mergers, we Postmerger
Home used HMDA data. FRB provided us with "value-added" HMDA
data for the years 1994-98; in these data, the individual HMDA
loan files were merged Mortgage Lending with census tract
characteristics from the 1990 Census of Population and Housing.
We undertook steps to verify, in part, the accuracy of HMDA data
used in our premerger and postmerger HMDA analysis for the three
BHC mergers that we reviewed. We reviewed information on the
process used by the Federal Financial Institutions Examination
Council's (FFIEC) member agencies for the identification and
resolution of errors in the HMDA information submitted by lenders.
In November 1994, FRB amended a regulation to require lenders to
update the HMDA information on their loan activity on a quarterly
basis and to require most lenders to submit their data to the
supervisory agencies in a machine-readable form. We discussed HMDA
data with FRB and BHC officials. We identified that HMDA data on
home improvement loans were not consistently reported by all HMDA
reporters because they have the option to report equity lines of
credit as home improvement loans. We also obtained a list of the
bank and nonbank subsidiaries of the three BHCs who were HMDA
filers in the metropolitan statistical areas we were analyzing.
We obtained the list of HMDA reporters from DCCA as well as Bank
One, Chase Manhattan, and Page 35 GAO/GGD-99-180
Guidelines for Community Reinvestment Issues Appendix I Scope and
Methodology Fleet. In cases where discrepancies were present, we
conducted statistical analyses and followed up with inquiries to
DCCA and BHCs to reach resolution. In our mortgage lending
analysis, we defined a census tract as LMI if median family income
for the census tract was less than 80 percent of median family
income for the metropolitan statistical area. Consistent with
definitions used in an analysis of trends in home purchase lending
recently conducted by FRB, we classified a census tract as a
minority tract if 20 percent or more of the residents were members
of minority groups.1 This definition of a minority tract therefore
includes census tracts that can be characterized as integrated as
well as census tracts that have a greater number of minority
residents. FRB provided us with 1998 HMDA data that allowed us to
calculate portfolio, but not market share, measures of lending
performance for Chase Manhattan in the 2nd year after the
acquisition was completed. During the time frame of our work, 1998
HMDA data required to calculate market shares were not available.
HMDA data alone cannot reflect changes in market conditions that
help determine market outcomes. For example, mortgage interest
rates change over time, thus affecting the number of households
among different income groups that purchase a home or refinance
existing mortgages. We calculated portfolio and market shares for
both the universe of single- family mortgage originations and
conventional home purchase mortgage originations to see if the
various statistical results were consistent with one another. We
also calculated the BHC's market share in all census tracts to
create a benchmark that can be compared to changes in the BHC's
market share in LMI and minority census tracts. We tested the HMDA
data we obtained from FRB for missing variable values. We found
that the variables on which we relied, such as HMDA reporter,
metropolitan statistical area, census tract number, census tract
family income, and census tract minority population, were not
missing for the years 1994 through 1998. 1 Robert B. Avery,
Raphael W. Bostic, Paul S. Calem, and Glenn B. Canner, "Trends in
Home Purchase Lending: Consolidation and the Community
Reinvestment Act," Federal Reserve Bulletin (Feb. 1999), pp. 81-
102. Page 36 GAO/GGD-99-180
Guidelines for Community Reinvestment Issues Appendix II Premerger
Bank Subsidiary CRA Performance Ratings Tables II.1 through II.12
list the premerger CRA performance ratings for all bank
subsidiaries owned by the applicant and the target institutions of
the six BHC merger cases that we reviewed. NBD Corporation
acquired First Chicago Corporation in 1995. NBD's Acquisition of
First Chicago Table II.1: NBD Corporation Premerger CRA Ratings
Assets NBD Corporation bank subsidiaries (in
millions) CRA ratings Date Agency
NBD-Michigan, N.A,. Detroit, MI $31,000.0
Outstanding March 31, 1993 OCC NBD-Skokie, N.A.,
Skokie, IL 781.9
Satisfactory March 31, 1995 0CC NBD-Indianapolis, N.A.,
Indianapolis, IN 9,986.1 Outstanding
April 20, 1993 0CC NBD-Elkhart, Elkhart, IN
718.9 Satisfactory June 1, 1993 FRB-Chicago
NBD-Florida, Venice, Fl
78.3 Satisfactory October 20, 1994 OTS NBD-Ohio,
Columbus, OH 706.4
Outstanding May 16, 1994 OCC NBD-Wheaton, Wheaton,
IL 5,719.0 Outstanding
October 29, 1993 OCC Source: Federal Reserve Board. Table
II.2: First Chicago Corporation Premerger CRA Ratings Assets
First Chicago Corporation bank subsidiaries (in
billions) CRA ratings Date Agency
First National Bank of Chicago,
$49.3 Satisfactory November 5, 1993 OCC Chicago,
IL American National Bank and Trust Co.
6.2 Satisfactory April 11, 1994 OCC Chicago,
IL FCC National Bank, Wilmington, DE
5.8 Outstanding April 11, 1994 OCC Source:
Federal Reserve Board. Page 37 GAO/GGD-99-180
Guidelines for Community Reinvestment Issues Appendix II Premerger
Bank Subsidiary CRA Performance Ratings Fleet Financial Group
acquired Shawmut in 1995. Fleet's Acquisition of Shawmut Table
II.3: Fleet Financial Group Premerger CRA Ratings Assets Fleet
Financial Group bank subsidiaries (in billions)
CRA ratings Date Agency Fleet Bank,
Albany, NY $14.8
Satisfactory January 10, 1994 FRB-New York Fleet
Bank, Melville, NY N/A
Outstanding May 18, 1992 FRB-New York Fleet
National Bank, Providence, RI 10.1
Satisfactory March 31, 1995 OCC Fleet Bank of
Massachusetts, N.A., 10.8
Satisfactory March 31, 1995 OCC Boston MA Fleet
Bank., N.A., Hartford, CT 6.9
Outstanding March 31, 1993 OCC Fleet Bank of
Maine, Portland, ME 3.1
Outstanding August 8, 1994 FRB-Boston Fleet Bank-
NH, Nashua, NH 1.9
Outstanding August 8, 1994 FRB-Boston Source:
Federal Reserve Board. Table II.4: Shawmut National Corporation
Premerger CRA Ratings Shawmut National Corporation bank
Assets subsidiaries
(in billions) CRA ratings Date
Agency Shawmut Bank, N.A., Boston, MA
$14.4 Satisfactory December 31, 1993 OCC
Shawmut Bank-Connecticut, N.A.,
18.7 Satisfactory December 31, 1993 OCC
Hartford, CT Shawmut Bank-NH, Manchester, NH
1.8 Satisfactory April 11, 1994 FDIC
Shawmut Bank-New York, N.A.,
1.7 Not examined N/A N/A
Schenectady, NYa Shawmut Bank, FSB, Boca Raton, FLb
0.2 Not examined N/A N/A
aShawmut Bank-New York was formed in June 1995 from the
acquisition of branches of Northeast Savings, F.A., Hartford, CT
(Satisfactory, Sept. 28, 1992). bShawmut Bank, FSB, was formed
through the acquisition of branches from the Resolution Trust
Corporation in July 1994. Source: Federal Reserve Board. Page 38
GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
Appendix II Premerger Bank Subsidiary CRA Performance Ratings
Chemical Banking Corporation acquired Chase Manhattan in 1996.
Chemical's Acquisition of Chase Manhattan Table II.5: Chemical
Banking Corporation Premerger CRA Ratings Chemical Banking
Corporation bank Assets subsidiaries
(in millions) CRA ratings Date
Agency Chemical Bank, New York, NY
$153,100 Outstanding March 13, 1995 FRB-New
York Chemical Bank, N.A., Jericho, NY
4,342 Satisfactory September 30, 1994 OCC Texas
Commerce Bank, N.A., 19,649
Outstanding September 14, 1994 OCC Houston, TX Texas
Commerce Bank--San Angelo, 201
Satisfactory September 15, 1994 OCC San Angelo, TX
Chemical Bank, New Jersey, N.A., East
188 Satisfactory August 31, 1993 OCC Brunswick,
NJ Princeton Bank & Trust Co, N.A., East
N/A Satisfactory August 31, 1993 OCC Brunswick,
NJ Chemical Bank, FSB, Palm Beach, FL
162 Satisfactory March 6, 1995 OTS Source:
Federal Reserve Board. Table II.6: Chase Manhattan Corporation
Premerger CRA Ratings Chase Manhattan Corporation bank
Assets subsidiaries (in
millions) CRA ratings Date Agency
The Chase Manhattan Bank, N.A.,
$97,900 Satisfactory October 28, 1993 OCC New
York, NY The Chase Manhattan Bank (USA)
9,616 Outstanding August 30, 1994 FDIC
Wilmington, DE The Chase Manhattan Bank of Florida,
409 Satisfactory October 6, 1993 OCC N.A.,
Tampa, FL The Chase Manhattan Bank of Maryland,
646 Satisfactory February 6, 1995 FRB-Richmond
Baltimore, MD Source: Federal Reserve Board. Page 39
GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
Appendix II Premerger Bank Subsidiary CRA Performance Ratings
NationsBank Corporation acquired Boatmen's Bancshares in 1996.
NationsBank's Acquisition of Boatmen's Bancshares Table II.7:
NationsBank Corporation Premerger CRA Ratings Assets Nationsbank
Corporation subsidiaries (in billions)
CRA ratings Date Agency NationsBank
N.A. Carolinas, Charlotte, NCa $70.2
Outstanding July 21, 1995 OCC NationsBank,
N.A. (South), Atlanta, GA 49.5
Outstanding July 21, 1995 OCC NationsBank of
Texas, N.A., Dallas, TX 41.7
Outstanding July 21, 1995 OCC NationsBank of
Delaware, N.A., Dover, DE 6.6
Satisfactory July 21, 1995 OCC NationsBank of
Tennessee, N.A., Nashville, 4.9
Outstanding July 21, 1995 OCC TN NationsBank
of Kentucky, N.A., Hopkinsville, 0.2
Satisfactory July 21, 1995 OCC KY Sun World,
N.A., El Paso, TX 0.1
Not examined N/A N/A aSince the 1995
examinations, NationsBank merged several banks. NationsBank of
Florida, N.A., Tampa, Fl, which merged into the Atlanta, GA,
subsidiary, received a CRA rating of outstanding (July 1995).
NationsBank, N.A., Richmond, VA, merged into the Charlotte, NC,
bank and received a CRA rating of outstanding (July 1995). Source:
Federal Reserve Board. Page 40 GAO/GGD-99-
180 Guidelines for Community Reinvestment Issues Appendix II
Premerger Bank Subsidiary CRA Performance Ratings Table II.8:
Boatmen's Bancshares Premerger CRA RatingsAssets Boatmen's
Bancshares subsidiaries (in billions)
CRA ratings Date Agency Boatmens NB of
Batesville, Batesville, AR $160. 7
Outstanding April 29, 1996 OCC Boatmens NB of North
Central AR, Bull 208.5
Outstanding April 1, 1996 OCC Shoals, AR Boatmens NB
of South AR, Camden, AR 115.4
Outstanding April 29, 1996 OCC Boatmens NB of Conway,
Conway, AR 198.7
Outstanding April 29, 1996 OCC Boatmens NB of North
West AR, Fayetteville, 494.7
Outstanding May 6, 1996 OCC AR Superior Federal
Bank, FSB, Fort Smith, AR 1,229.2
Outstanding August 8, 1994 OTS Boatmens NB of Hot
Springs, Hot Springs, AR 304.9
Outstanding April 15, 1996 OCC Boatmens BK of
Northeast AR, Jonesboro, 257.7
Satisfactory February 13, 1995 FDIC AR Boatmens NB of AR,
Little Rock, AR 1,592.5
Outstanding April 8, 1996 OCC Boatmens NB of Newark,
Newark, AR 12.5
Outstanding May 6, 1996 OCC Boatmens NB of Pine
Bluff, Pine Bluff, AR 246.7
Outstanding April 29, 1996 OCC Boatmens NB of
Russellville, Russellville, AR 164.0
Outstanding April 22, 1996 OCC Boatmens Bank of
Franklin County, Benton, IL 166.1
Satisfactory November 28, 1994 FDIC Boatmens NB
Charleston, Charleston, IL 112.8
Satisfactory September 27, 1994 OCC Boatmens NB of Central
IL, Hillsboro, IL 109.2
Satisfactory September 12, 1994 OCC Boatmens Bank of S.
Central IL, Mount 236.4
Outstanding January 3, 1994 FDIC Vernon, IL Boatmens
Bank of Quincy, Quincy, IL 193.7
Outstanding February 4, 1994 FDIC Boatmens Bank of
Iowa, NA, Des Moines, IA 688.7
Outstanding September 6, 1994 OCC Boatmens BK Fort
Dodge, Fort Dodge, IA 104.5
Outstanding April 24, 1995 FDIC Boatmens Bank North
Iowa, Mason City, IA 258.7
Outstanding July 15, 1996 FDIC Boatmens NB Northwest
IA, Spencer, IA 115.9
Satisfactory July 25, 1994 OCC Bank IV NA, Wichita,
KS 4,754.7
Outstanding March13, 1995 OCC Boatmens NB of
Boonville, Boonville, MO 51.1
Satisfactory October 3, 1994 OCC Boatmens Osage Bank,
Butler, MO 113.3
Outstanding December 30, 1994 FDIC Boatmens NB of Cape
Girardeau, Cape 423.5
Satisfactory April 4, 1994 OCC Girardeau, MO Boatmens
Bank of Southwest MO, Carthage, 237.4
Outstanding September 5, 1995 FRB-Kansas MO
City Boatmens Bank of Mid MO, Columbia, MO
288.4 Outstanding December 12, 1994 FDIC
Boatmens First NB of Kansas, Kansas City,
4,428.5 Outstanding January 18, 1994 OCC MO
Boatmens Bank, Kennett, MO
125.2 Satisfactory April 1, 1996 FDIC
Boatmens NB Lebanon, Lebanon, MO
100.1 Satisfactory August 15, 1994 OCC
Boatmens River Valley Bank, Lexington, MO
74.1 Outstanding January 19, 1996 FDIC Boatmens
Bank of Marshall, Marshall, MO 69.7
Outstanding August 16, 1994 FDIC Boatmens Bank of
Pulaski County, Richland, 46.9
Outstanding September 5, 1995 FDIC MO Boatmens Bank,
Rolla, MO 99.1
Outstanding August 8, 1994 FDIC Boatmens NB of St.
Louis, St. Louis 11,482.4
Outstanding February 26, 1996 OCC Boatmens Bank of
Southern MO, Springfield, 1,192.2
Outstanding October 18, 1995 FDIC MO Boatmens Bank of
Troy, Troy, MO 62.6
Satisfactory April 3, 1995 FDIC Page 41
GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
Appendix II Premerger Bank Subsidiary CRA Performance Ratings
Assets Boatmen's Bancshares subsidiaries
(in billions) CRA ratings Date
Agency Boatmens Bank, Vandalia, MO
41.1 Satisfactory January 10, 1995 FRB-St. Louis
Boatmens First NB, West Plains, MO
152.5 Satisfactory September 12, 1994 OCC Boatmens
Credit Card Bank, Albuquerque, 580.9
Satisfactory August 19, 1994 FDIC NM Sunwest Bank of
Albuquerque, Albuquerque, 2,217.5
Outstanding April 4, 1994 OCC NM Sunwest Bank of
Clovis, NA, Clovis, NM 169.5
Outstanding March 31, 1994 OCC Sunwest Bank of Rio
Arriba, NA, Espanola, 90.7
Satisfactory March 31, 1994 OCC NM Sunwest Bank of
Farmington, Farmington, NM 79.1
Satisfactory March 8, 1996 FDIC Sunwest Bank of
Gallup, Gallup, NM 176.5
Satisfactory January 12, 1996 FDIC Sunwest Bank of
Hobbs, Hobbs, NM 78.1
Satisfactory April 11, 1994 OCC Sunwest Bank of Las
Cruces, NA, 99.6
Satisfactory April 18, 1994 OCC Las Cruces, NM Sunwest
Bank of Raton, NA, Raton, NM 84.4
Outstanding March 31, 1994 OCC Sunwest Bank of
Roswell, NA, Roswell, NM 165.3
Satisfactory March 31, 1994 OCC Sunwest Bank of Santa
Fe, Santa Fe, NM 283.2
Outstanding November 25, 1994 FDIC Sunwest Bank, Silver
City, NM 107.4
Outstanding April 24, 1995 FRB-Dallas Boatmens NB of
Oklahoma, Tulsa, OK 3,961.4
Satisfactory September 12, 1995 OCC Boatmens Bank of
Tennessee, Memphis, TN 942.7
Outstanding December 12, 1994 FDIC Boatmens First NB,
Amarillo, TX 1,586.1
Satisfactory May 16, 1994 OCC Boatmens NB Austin,
Austin, TX 120.9
Satisfactory October 10, 1994 OCC Sunwest Bank, El Paso,
TX 548.8
Outstanding July 8, 1996 FDIC Source: Federal
Reserve Board. Page 42 GAO/GGD-99-180
Guidelines for Community Reinvestment Issues Appendix II Premerger
Bank Subsidiary CRA Performance Ratings NationsBank Corporation
acquired BankAmerica in 1998. NationsBank's Acquisition of
BankAmerica Table II.9: NationsBank Corporation Premerger CRA
Ratings NationsBank Corporation bank
Assets subsidiaries
(in billions) CRA ratings Date
Agency NationsBank, N.A. (Carolinas), Charlotte, NCa
$216.4 Outstanding July 21, 1995
OCC NationsBank of Tennessee, N.A., Nashville,
6.0 Outstanding July 21, 1995 OCC
TN NationsBank of Kentucky, N.A., Hopkinsville,
0.2 Satisfactory July 21, 1995 OCC
KY NationsBank of Delaware, N.A., Dover, DE
6.7 Satisfactory July 21, 1995 OCC
NationsBank, N.A. (NationsBank-Glynn Co.),
0.3 Outstanding April 22, 1996 OTS
Brunswick, GA Sunwest Bank of El Paso, TX
0.6 Outstanding July 8, 1996 FDIC
Boatmen's National Bank of Austin, Austin, TX
0.1 Satisfactory December 31, 1994 OCC
Barnett Bank, N.A. (Barnett), Jacksonville, FL
46.3 Outstanding December 31, 1996 OCC
Community Bank of the Islands, Sanibel, FL
0.1 Outstanding January 31, 1996 FRB-
Atlanta Superior Federal Bank, FSB, Ft. Smith, AR
1.3 Outstanding August 8, 1994 OTS
aAt the time of the BHC merger application review, the
NationsBank, N.A., operated in 14 states and DC; it included all
of NationsBank's East Coast banks (except banks in Tennessee,
Kentucky, and the Barnett Banks) and all former Boatmen's banks.
NationsBank--TX merged into NationsBank, N.A., on 5/6/98 as the
result of a court decision allowing the merger of Texas banks into
banks based in other states; Boatmen's-TX and Sunwest-TX were also
merged into the NC bank. Source: Federal Reserve Board. Table
II.10: BankAmerica Corporation Premerger CRA Ratings BankAmerica
Corporation bank Assets
subsidiaries
(in billions) CRA ratings Date
Agency Bank of America National Trust and SA,
$240.4 Outstanding September 30, 1997
OCC San Francisco, CA Bank of America, N.A., Phoenix, AZ
6.7 Outstanding October 31, 1996 OCC
Bank of America Texas, N.A., Irving, TX
5.3 Outstanding October 31, 1996 OCC
Bank of America, FSB, Portland, ORa
15.8 Outstanding June 9, 1997 OTS
Bank of America Community Development
0.4 Outstanding August 27, 1997 FDIC
Bank, Walnut Creek, CAb aAll deposit-taking branches were sold
(Hawaii, Dec. 5, 1997, and in-store branches in the Chicago MSA,
Jan. 31,1998). Other divisions included BankAmerica's mortgage
company and a community development division, which generally
complemented the activities of the Bank of America Community
Development Bank and operated in states other than California.
bThe bank was considered a leader for community development
efforts for all BankAmerica banking units. Its activities focused
on Small Business Administration lending, affordable housing
lending, and community development services; it operated mainly in
California. Source: Federal Reserve Board. Page 43
GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
Appendix II Premerger Bank Subsidiary CRA Performance Ratings Bank
One Corporation acquired NBD First Chicago in 1998. Bank One's
Acquisition of NBD First Chicago Table II.11: Bank One Corporation
Premerger CRA Ratings Bank One Corporation bank
Assets subsidiaries
(in millions) CRA ratings Date
Agency Bank One NA, Columbus, OHa
$24,607 Outstanding January 21, 1995
OCC Bank One Texas, NA, Dallas, TX
24,509 Satisfactory October 31, 1997
OCC Bank One Arizona, NA, Phoenix, AZ.
14,678 Satisfactory October 28, 1996
OCC Bank One Wisconsin, Milwaukee, WIa
9,007 Satisfactory November 25, 1995
OCCc First USA Bank, Wilmington, DE
9,002 Satisfactory August 19, 1996
FDICd Bank One Indiana, NA, Indianapolis, INa
8,323 Outstanding February 21, 1995 OCC
Bank One LA, NA, Baton Rouge, LA
6,003 Satisfactory September 19, 1996 OCC
Bank One Kentucky, NA, Louisville, KY
5,456 Outstanding November 7, 1994b OCC
Bank One Oklahoma, NA, Oklahoma City,
3,890 Satisfactory April 22, 1996 OCC
OK Bank One Illinois, NA, Springfield, IL
3,535 Outstanding December 21, 1994 OCC
Bank One Colorado, NA, Denver, CO
2,956 Outstanding January 13, 1997 OCC
Bank One West VA, NA, Huntington, WV
2,397 Satisfactory June 30, 1997 OCC
Bank One Utah, NA, Salt Lake City, UT
1,025 Satisfactory October 31, 1997 OCC
Bank One Trust Co., NA, Columbus, OHe
581 Not examined N/A OCC
Bank One Wheeling, Steubenville, NA,
453 Satisfactory April 15, 1996 OCC
Wheeling, WV aFRB staff noted that subsequent to the 1995 CRA
examination of Bank One's Columbus, OH, bank subsidiary, it merged
several other Bank One Ohio bank subsidiaries into the Columbus
bank. Similarly, Bank One merged its other Indiana bank
subsidiaries into the Indianapolis, IN, bank after that bank's
1995 CRA examination. In Wisconsin, Bank One merged several of
its subsidiaries into the Milwaukee bank subsequent to that bank
subsidiary's 1995 CRA examination. Also, in Illinois, Bank One
merged several subsidiaries into the Springfield bank, which was
examined in late 1994. Therefore, these 1994/1995 ratings do not
represent examinations of Bank One's activities throughout these
three states. FRB staff noted that all Bank One's banks that were
merged out of existence had at least satisfactory CRA ratings. bAt
the time of the BHC merger application review, the primary bank
regulator was conducting a CRA examination at the bank. cChanged
to an OCC charter in April 1998. dChanged to a FDIC charter in
October 1996. eThe subsidiary was not subject to CRA. Source:
Federal Reserve Board. Page 44 GAO/GGD-99-
180 Guidelines for Community Reinvestment Issues Appendix II
Premerger Bank Subsidiary CRA Performance Ratings Table II.12:
First Chicago NBD Corporation Premerger CRA Ratings First Chicago
NBD Corporation bank Assets subsidiaries
(in millions) CRA ratings Date
Agency First NB of Chicago, Chicago, IL
$58,138 Satisfactory November 3, 1997
OCC NBD Bank, Detroit, MI
22,138 Outstanding May 28, 1996a
FRB-Chicago FCC National Bank, Wilmington, DE
9,404 Outstanding May 17, 1995a OCC
NBD Bank, NA, Indianapolis, IN 9,268
Outstanding March 11, 1996 OCC American NB &
Trust, Chicago, IL 9,260
Satisfactory January 9, 1995a OCC NBD Bank,
Elkhart, IN 713
Outstanding July 26, 1998 FDIC NBD Bank,
Venice FL 129
Satisfactory August 12, 1996 FDIC aAt the time
of the BHC merger application review, the primary bank regulator
was conducting a CRA examination at the bank. Source: Federal
Reserve Board. Page 45 GAO/GGD-99-180
Guidelines for Community Reinvestment Issues Appendix III
Discussion of Principal CRA Concerns Raised by Commenters FRB
received both supportive and opposing comments for all six
mergers. This appendix provides a discussion of the CRA concerns
raised in each merger. Our discussion includes the financial
institutions, CRA comments, and geographic areas raised in the
concerns. Commenters raised concerns that NBD had inadequate
lending in LMI NBD's Acquisition of areas in the Detroit
MSA, where the lead bank subsidiary was located. First Chicago
Similar concerns were also raised regarding the inadequacy of
First Chicago's lending in the Lake County area of Chicago.
Commenters also alleged that NBD redlined many LMI Detroit
communities, as evidenced by the lead bank subsidiary's lack of
branch presence and minimal marketing of credit products in these
areas. Commenters expressed concerns about inadequate lending by
Fleet or its Fleet's Acquisition of subsidiaries in
minority census tracts in the 13 MSAs in New York State. Shawmut
Commenters alleged that the level of mortgage applications that
Fleet received in each MSA was not consistent with the
demographics of each MSA, and that the application denial rates
evidenced disparate lending to minorities and those in LMI census
tracts. Concerns were also raised regarding potential branch
closures that would result in decreased banking services to LMI
neighborhoods. Commenters raised CRA concerns for both Chemical
and Chase Chemical's Acquisition Manhattan. Concerns were
expressed about Chemical's and Chase's of Chase Manhattan
lending in all states where the banks had a banking presence.
Commenters also expressed concern that Chase had inadequate
mortgage lending in LMI communities in a broad cross-section of
cities, including Chicago, Los Angeles, Atlanta, Detroit, and
Dallas. Commenters expressed concern that Chemical lacked home
mortgage lending in LMI census tracts in New York, New Jersey,
Delaware, Florida, and Texas. Concerns were also raised regarding
branch closures. In particular, a number of commenters expressed
concern with the impact of Chemical's announced branch closures in
LMI areas of New York City. Commenters expressed concern that
NationsBank had inadequate NationsBank's mortgage
and business lending to minorities and possible branch closings
Acquisition of in Travis County, TX. Boatmen's
Bancshares Page 46 GAO/GGD-99-180 Guidelines for
Community Reinvestment Issues Appendix III Discussion of Principal
CRA Concerns Raised by Commenters Similar to the previous
NationsBank merger, numerous commenters NationsBank's
criticized the lending records of one or both banks in a number of
Acquisition of geographical areas. Commenters
were concerned that one or both of the banks did not adequately
lend to LMI individuals and areas. Concerns BankAmerica
were also raised regarding NationsBank's small business and rural
lending, and branch closings. One commenter asserted that the
acquisition of BankAmerica would result in branch closings and
reductions in banking services to LMI communities. Commenters
criticized both BHCs' home mortgage lending and small Bank One's
Acquisition business lending in serving the needs of minority
borrowers and LMI and of NBD First Chicago rural areas.
Some commenters' concerns were related to Bank One's April 1998
decision to modify its mortgage lending strategy, which they
interpreted as the bank's plan to exit the mortgage lending
business. Commenters feared that such a strategy would have the
impact of reduced access to mortgage credit for certain
individuals. Commenters also expressed concern about branch
closings, including the concern that branch closings would reduce
the availability of banking services to individuals in LMI and
minority neighborhoods. In addition, commenters expressed concern
about Bank One's refusal to enter into community reinvestment
agreements similar to the agreements entered into by First Chicago
in Detroit and Chicago. Page 47 GAO/GGD-99-180
Guidelines for Community Reinvestment Issues Appendix IV Examples
of FRB Analysis of HMDA Data in Response to Public Concerns For
each merger application, DCCA produced statistical tabulations on
each geographic area where home mortgage lending concerns were
raised. Tables IV.1 through IV.6 present examples of FRB analysis
conducted with HMDA data that were performed in response to public
concerns raised in each of the six bank holding company mergers
included in our case study. The examples, which represent a small
subset of DCCA's tabulations, are presented in six tables
representing (1) NBD's acquisition of First Chicago in 1995, (2)
Fleet's acquisition of Shawmut in 1995, (3) Chemical's acquisition
of Chase in 1996, (4) NationsBank's acquisition of Boatmen's in
1997, (5) NationsBank's acquisition of BankAmerica in 1998, and
(6) Bank One's acquisition of NBD First Chicago in 1998. Each
table includes statistics generated by FRB analysts for census
tracts classified as LMI in response to public comments stating
that such lending was insufficient. Each table also includes
statistics generated for minority applicants in the MSA or region.
We reported FRB's analysis for the minority group accounting for
the highest percentage of mortgage originations in the geographic
area. When analyses were performed for a number of geographic
areas covering one or more parties to the merger, we reported
FRB's analysis for the area and merger partner we considered to be
most helpful for illustrating FRB's process. For example, in
NBD's acquisition of First Chicago, we reported FRB analysis for
NBD in the Detroit MSA. FRB also conducted an analysis for First
Chicago in the Chicago MSA and in Lake County, IL, in response to
public comments on First Chicago's lending in those geographic
areas. Table IV.1: HMDA Statistics Generated NBD-Detroit MSA
1993 1994 in Response to Public Concerns Raised
Percentage of NBD mortgage applications
8.3% 13.7% in NBD's Acquisition of First Chicago
from LMI tracts Percentage of NBD mortgage applications
6.6 11.7 from African-American applicants Percentage
of NBD mortgage originations 7.6
16.3 from LMI tracts Percentage of all institution mortgage
6.9 12.4 originations from LMI tracts Percentage of
NBD mortgage originations 5.6
11.2 to African-American applicants Percentage of all institution
mortgage 5.0 10.3
originations to African-American applicants Source: Federal
Reserve Board. Page 48 GAO/GGD-99-180
Guidelines for Community Reinvestment Issues Appendix IV Examples
of FRB Analysis of HMDA Data in Response to Public Concerns Table
IV.2: HMDA Statistics Generated Fleet-Albany
1993 1994 in Response to Public Concerns Raised
Percentage of Fleet mortgage applications
16.6% 19.1% in Fleet's Acquisition of Shawmut
from LMI tracts Percentage of Fleet mortgage applications
1.4 3.2 from African-American applicants Percentage
of Fleet mortgage originations 15.2
17.8 from LMI tracts Percentage of all institution mortgage
12.4 13.4 originations from LMI tracts Percentage of
Fleet mortgage originations 1.4
3.1 to African-American applicants Percentage of all institution
mortgage 1.7 1.9
originations to African-American applicants Source: Federal
Reserve Board. Table IV.3: HMDA Statistics Generated Chase-New
York MSA 1993
1994 in Response to Public Concerns Raised Percentage of Chase
mortgage applications 8.5% 9.6%
in Chemical's Acquisition of Chase from LMI Tracts
Percentage of Chase mortgage applications
12.3 17.7 from African-American applicants Percentage
of Chase mortgage originations 7.7
9.3 from LMI tracts Percentage of all institution mortgage
7.8 9.8 originations from LMI Tracts Percentage of
Chase mortgage originations 11.3
15.7 to African-American applicants Percentage of all institution
mortgage 9.1 13.7
originations to African-American applicants Source: Federal
Reserve Board. Table IV.4: HMDA Statistics Generated
NationsBank-Travis County, TX
1994 1995 in Response to Public Concerns Raised
Percentage of NationsBank mortgage
24.3% 27.0% in NationsBank Acquisition of
Applications from LMI tracts Boatmen's
Percentage of NationsBank mortgage
13.2 16.2 applications from Hispanic applicants
Percentage of NationsBank mortgage
22.0 22.8 Originations from LMI tracts Percentage of
all institution mortgage 15.5
16.8 Originations from LMI tracts Percentage of NationsBank
mortgage 10.2 13.3
originations to Hispanic applicants Percentage of all institution
mortgage 8.7 11.1
originations to Hispanic applicants Source: Federal Reserve
Board. Page 49 GAO/GGD-99-180 Guidelines for
Community Reinvestment Issues Appendix IV Examples of FRB Analysis
of HMDA Data in Response to Public Concerns Table IV.5: HMDA
Statistics Generated NationsBank-TX
1995 1996 1997 in Response to Public Concerns
Raised Percentage of NationsBank mortgage
26.1% 23.9% 22.0% in NationsBank's Acquisition of
Bank applications from LMI tracts America
Percentage of NationsBank mortgage 18.6
18.3 18.4 applications from Hispanic applicants Percentage
of NationsBank mortgage 21.1 18.4
15.7 originations from LMI tracts Percentage of all institution
mortgage 14.7 14.1 14.2
originations from LMI tracts Percentage of NationsBank mortgage
15.7 14.3 13.9 originations to Hispanic applicants
Percentage of all institution mortgage 15.5
15.2 15.1 originations to Hispanic applicants Source:
Federal Reserve Board. Table IV.6: HMDA Statistics Generated
Bank One-Indianapolis MSA 1995
1996 1997 in Response to Public Concerns Raised
Percentage of Bank One mortgage applications 28.3%
24.4% 26.8% in Bank One's Acquisition of NBD First from
LMI tracts Chicago Percentage of
Bank One mortgage applications 14.4 13.8
15.2 from African-American applicants Percentage of Bank One
mortgage originations 23.0 19.1 21.6
from LMI tracts Percentage of all institution mortgage
16.6 16.1 16.9 originations from LMI tracts
Percentage of Bank One mortgage originations 10.6
10.2 11.2 to African-American applicants Percentage of all
institution mortgage 7.7 7.7
7.7 originations to African-American applicants Source: Federal
Reserve Board. Page 50 GAO/GGD-99-180
Guidelines for Community Reinvestment Issues Appendix V BHC
Mergers and Lending in Minority and Low- and Moderate-Income Areas
This appendix contains our statistical results using a broader
universe of all single-family home mortgage lending. We define a
single-family mortgage loan as a home purchase, refinancing, or
home improvement loan used to finance an one- to four-unit
residential structure. Statistical results using our narrower
universe of conventional, single-family home purchase loan
originations are contained in the body of the letter. Our broader
universe of home mortgage lending includes home improvement loans
that are not consistently reported by all HMDA reporters. HMDA
reporters have the option to report equity lines of credit as home
improvement loans. We also include refinancing loans that are
more sensitive to interest rate changes as compared to home
purchase loans. Our broader universe also includes federally
insured loans. NBD First Chicago Bank's market and portfolio share
measures for all NBD First Chicago
single-family loan originations are presented in table V.1. The
market share Bank Merger Shows
percentages for NBD First Chicago were fairly stable from 1994 to
1997 for both LMI and minority areas. Fairly Stable LMI and
Minority Lending Table V.1: Market and Portfolio Shares for First
Chicago/NBD Bank Holding Companies for All Single-Family Mortgage
Loan Originations in the Chicago MSA
NBD/First Chicago NBD Market or portfolio
share 1994
1995 1996 1997 Market share of loan
origination for Chicago MSA 4.4%
5.5% 4.9% 5.0% Market share of census
tracts that were: LMI
3.9 4.1 3.7 4.0 Minority
4.0 4.5 4.0 4.3 Portfolio
share of census tracts that were: LMI
12.5 11.7 11.5 13.2
Minority
27.7 25.2 25.0 27.9 Source:
HMDA data. As stated in the letter of this report, Fleet's 1995
acquisition of Shawmut Fleet Merger Had
National Bank is associated with a reduction in conventional,
single-family Reduction in Lending home
purchase mortgage lending to LMI and minority census tracts that
mirrored Fleet's overall reduction in mortgage lending for the
Boston in LMI and Minority metropolitan
statistical area. According to Fleet Financial Group officials,
Areas That Mirrored over the period of
1994 to 1997, the Boston MSA experienced a significant Its
Reduction in the influx of mortgage
lenders that resulted in competitive pressures and a Overall
Market subsequent reduction in
residential mortgage lending among existing lenders in that
market. A generally consistent pattern is found in table V.2 for
all single-family loan originations by Fleet in the Boston
metropolitan Page 51 GAO/GGD-99-180 Guidelines for
Community Reinvestment Issues Appendix V BHC Mergers and Lending
in Minority and Low- and Moderate-Income Areas statistical area.
Market share declines in LMI and minority census tracts generally
mirrored declines for all census tracts. The market share
declines in LMI and minority census tracts were accompanied by
declines in respective portfolio share measures. Table V.2: Market
and Portfolio Shares for Fleet/Shawmut Bank Holding Company for
All Single-Family Mortgage Loan Originations in the Boston MSA
Fleet/Shawmut Fleet Market or
portfolio share
1994 1995 1996 1997
Market share of loan origination for Boston MSA
8.1% 10.2% 6.9% 5.7%
Market share of census tracts that were: LMI
17.3 19.1 11.6 9.1
Minority
21.4 22.4 12.4 9.4
Portfolio share of census tracts that were: LMI
25.3 25.0 22.5 21.6
Minority
18.8 18.2 14.8 13.5
Source: HMDA data. Chase Manhattan Bank's market and portfolio
share statistics for all single- Chase Manhattan Bank family loan
originations in the New York City metropolitan statistical area
Merger Shows an are presented in
table V.3. The statistics are comparable to those for
conventional home purchase loans discussed in the letter of this
report. Increase in LMI and The market
and portfolio shares of lending increased in LMI census tracts.
Minority Lending Market share in LMI
census tracts increased between 1995 and 1997 from 6.8 percent to
9.2 percent. On balance, the statistics indicated that the
consolidated BHC did not reduce access to credit in LMI and
minority census tracts after FRB approved its BHC application in
1996. Table V.3: Market and Portfolio Shares for Chemical/Chase
Manhattan Bank Holding Companies for All Single-Family Mortgage
Loan Originations in the New York City MSA
Chemical/Chase Chase Market or
portfolio share
1995 1996 1997 1998
Market share of loan origination for New York City MSA
10.8% 9.7% 10.1% a
Market share of census tracts that were: LMI
6.8 6.2 9.2 a
Minority
9.1 8.0 8.9 a
Portfolio share of census tracts that were: LMI
6.8 6.6 10.4 9.4%
Minority
39.6 38.2 41.1 40.1
aFRB provided us with 1998 HMDA data that allowed us to calculate
portfolio, but not market share measures of lending performance.
Source: HMDA data. Page 52 GAO/GGD-99-180
Guidelines for Community Reinvestment Issues Appendix VI Comments
From the Federal Reserve Board Page 53 GAO/GGD-99-180
Guidelines for Community Reinvestment Issues Appendix VII Comments
From the Office of the Comptroller of the Currency Page 54
GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
Appendix VIII GAO Contacts and Staff Acknowledgments Thomas J.
McCool, (202) 512-8678 GAO Contacts William B. Shear, (202)
512-4325 In addition to those named above, Joan M. Conway, Rachel
M. DeMarcus, Acknowledgments Nancy Eibeck, Christopher C.
Henderson, Sindy Udell, and Tonita G. Woodson made key
contributions to this report. Page 55 GAO/GGD-99-180
Guidelines for Community Reinvestment Issues Page 56 GAO/GGD-
99-180 Guidelines for Community Reinvestment Issues Ordering
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