Lenders that consistently have less than $1.226 billion in assets are
considered small banks. An appropriate agency, such as the OCC or
FDIC, will evaluate the bank’s record in helping to meet the credit
needs of its assessment area, pursuant to the small-bank lending test.
Under the small-bank lending test, the primary focus is on the institution’s loan-to-deposit ratio. Other activities, however, such as loan
originations, community-development loans or qualified investments,
will be incorporated into the performance criteria when appropriate.
Lenders that consistently have between $307 million and $1.226
billion in assets are considered intermediate small banks. They are
evaluated with criteria set forth in both the small-bank lending test
and the aforementioned community-development test, which is broken into four prongs:
■ Community-development loans, both in number and dollar
■ Qualified investments, both in number and dollar amount;
■ The extent to which the institution provides community-development services; and
■ The institution’s responsiveness through such activities to
community-development lending, investing and service needs.
The transition from intermediate small bank to large bank is substan-
tial. It involves lending, investment and service tests. The scope of
each of the individual tests is more detailed and rigorous, and each
test impacts the institution’s overall compliance rating. The rating
received for the lending test, for example, is weighed more heavily
when determining the overall CRA-compliance rating.
The lending test evaluates an institution’s lending activities by
considering home mortgage, small-business, small-farm and community-development products. A bank has the option to have regulators
consider third-party, or affiliate loans. In 2016, regulators clarified
that lenders are permitted to utilize flexible underwriting standards
to originate loans that benefit low- and moderate-income areas, but
only if the standards are consistent with the institution’s safe and
sound operational practices.
The investment test considers an institution’s qualified investments
that benefit its assessment area, or a broader statewide or regional
area that includes the institution’s assessment area. Regulators review
the dollar amount of qualified investments, their level of complexity,
their responsiveness to credit and community-development needs,
and how routinely they are provided by private investors.
The service test is used to evaluate a bank’s systems for delivering
retail services, as well as the extent and innovativeness of the bank’s
n n n
As lenders look for opportunities to serve the communities in which
they operate, commercial mortgage brokers can play a valuable role
in finding creative avenues to make loans or investments that also satisfy CRA obligations. As regulators continue to provide valuable guidance on CRA compliance, more opportunities will emerge for brokers
to serve their bank clients in increasingly innovative ways. n
“Lenders are permitted to utilize flexible
underwriting standards to originate loans that
benefit low- and moderate- income areas.”
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Joseph Silvia is an attorney whose practice focuses on general corporate matters, mergers, acquisitions, strategic transactions,
financial technology, and banking and consumer-finance regulation. Silvia previously spent four years as counsel to the Federal
Reserve Bank of Chicago, where he focused on bank and bank-holding company regulations, as well as consumer-finance and
compliance matters. Reach Silvia at email@example.com.