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Community Reinvestment Act

Last update: September 6, 2013


An institution’s record of meeting the credit needs of its entire community is taken into consideration by its supervisory agency when the institution seeks to expand through merger, acquisition, or branching. The law specifies that such community lending activity must be consistent with the safe and sound operation of the institutions.

The Community Reinvestment Act and Implementing Regulation

The Community Reinvestment Act (CRA) requires federal financial regulatory agencies to encourage regulated financial institutions to help meet the credit needs of their local communities, including low- and moderate-income neighborhoods. The CRA is implemented by the Board’s Regulation BB (12 C.F.R. 228). The full text of Regulation BB is available at External Link

The Federal Financial Institutions Examination Council (FFIEC) has also published Interagency Questions and Answers Regarding Community Reinvestment. External Link The questions and answers have been prepared by staff of the Board of Governors, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation to answer frequently asked questions about community reinvestment. These interagency questions and answers contain informal staff guidance for agency personnel, financial institutions, and the public.

The CRA Examination

In enacting the CRA, Congress required a periodic evaluation of each depository institution’s record in helping meet the credit needs of its entire community. The CRA regulations specify different Examination Procedures External Link for banks based on their asset size.1 Generally speaking, larger banks are subject to examination procedures of greater complexity and scope.

Large Banks

For banks with assets of $1.186 billion and more, the CRA examination consists of three parts: a lending test, an investment test, and a service test. Under the lending test, a bank’s lending performance is evaluated under different criteria, of which loans to low- and moderate-income people and in low- and moderate-income areas are typically the most important. Examiners also assess whether a large bank’s CRA performance is enhanced by offering innovative or flexible loan products that meet the credit needs of low- and moderate-income individuals or areas.2 Community development lending is another performance criterion in the evaluation of a large bank’s lending performance.

Under the other two tests, a bank’s practices in making investments and engaging in services benefiting low- and moderate-income people and areas are assessed. The investment test focuses solely on community development activity, while the service test has two focuses: community development and retail services.3

Intermediate Small Banks

Banks with assets of at least $296 million to $1.186 billion are subject to somewhat different examination procedures, which consist of a lending test and a community development test.4 Despite the different tests, the focus of the CRA examination is basically the same for intermediate small banks and large banks. It focuses on both retail and community development activities.

Small Banks

Banks with less than $296 million in assets are evaluated only on retail lending in their communities, including lending to low- and moderate-income areas and people. Given the more limited capacity and resources of small banks, they are not obligated to engage in community development activities.5

The one principle that applies to all banks (large, intermediate small, and small) is that favorable CRA consideration is granted only to activities that are safe and sound. Beyond that, each bank has full discretion and flexibility for devising a strategy that responds to the credit needs of its local community.

Defining Your Assessment Area

How does a bank go about defining its assessment area for the purpose of the CRA? A bank’s assessment area should include the geographies in which the bank has its main office, its branches, and its deposit-taking ATMs, as well as the surrounding geographies in which the bank has originated or purchased a substantial portion of its loans.

An assessment area will generally consist of one or more metropolitan statistical areas or metropolitan divisions, or one or more contiguous political subdivisions, such as counties, cities, or towns. A bank may adjust the boundaries of its assessment area to include only the portion of a political subdivision that it can reasonably be expected to serve based on its business model and asset size.

Senior management should review its assessment area periodically to ensure that it is still reasonable, particularly as the bank experiences growth, either through acquisition, branching, or the geographic expansion of its loan volume.

The assessment area delineation is based solely on geographic considerations and must consist only of whole geographies. It may not reflect illegal discrimination, may not arbitrarily exclude low- or moderate-income geographies, may not extend substantially beyond an MSA boundary. Also, the assessment area may not extend beyond a state boundary unless the assessment area is located in a multistate MSA.

It is important to note that a minority-owned bank may not identify a specific ethnic group rather than a geographic area as its assessment area and should ensure that it does not exclude other minorities or nonminorities that reside within its assessment area. Section 228.41 of Regulation BB addresses assessment area delineation.

CRA Investments in Minority-Owned Institutions

The Community Reinvestment Act and Regulation BB both specifically address the needs of minority-owned institutions. The CRA provides that, in assessing the CRA performance of nonminority-owned financial institutions, examiners may consider as a factor capital investments, loan participations, and other ventures undertaken by the institutions in cooperation with minority-owned financial institutions. This consideration may be given even if the minority-owned institution is not located in the assessment area of the investing bank or within the broader statewide or regional areas that include the investing bank’s assessment area. For more information, see the Interagency Q&A Provisions on Investments. External Link


  1. The asset thresholds are adjusted annually based on the consumer price index. Effective January 1, 2013, a small institution is an institution that, as of December 31 of either of the prior two calendar years, had assets of less than $1.186 billion. An intermediate small institution is an institution with assets of at least $296 million as of December 31 of both of the prior two calendar years, and less than $1.186 billion as of December 31 of either of the prior two calendar years. Thus, large institutions are those with assets of $1.186 billion or more as of December 31 of both of the prior two calendar years.
  2. §228.22(b) of Regulation BB identifies the lending test performance criteria.
  3. §228.23(e) of Regulation BB identifies the investment test performance criteria, and Section 228.24 (d) identifies the service test performance criteria.
  4. The performance criteria for intermediate small banks are set forth in Regulation BB §228.26(a)(2).
  5. The performance criteria for small banks are set forth in Regulation BB §228.26(a)(1).