Fireside chat

Video: NCRC Fireside Chat with Lael Brainard and Michael Hsu

NCRC Just Economy Conference 2022 —   Recorded June 13, 2022

The National Community Reinvestment Coalition’s President and CEO Jesse Van Tol held a virtual “fireside” chat with Vice Chair of the Board of Governors of the Federal Reserve System Lael Brainard and Acting Comptroller of the Currency Michael Hsu to discuss the notice of proposed rulemaking (NPR) for the Community Reinvestment Act (CRA) announced earlier this spring.




Van Tol  0:04

Well, good afternoon, thanks to the wonders of technology, we’re able to bring you three people who otherwise wouldn’t be able to participate in the conference. As the NCRC audience knows, earlier this year, the three banking regulators proposed an NPR to modernize CRA. We have two of the three principals with us here today virtually, Vice Chair of the Board of Governors of the Federal Reserve Lael Brainard and Acting Comptroller of the Currency Michael Hsu. I want to thank both of you for being here today, I know it was impossible to be in person, but really appreciate the effort to be here. And I think you need no further introduction to our audience. So I will dive right in.

Vice Chair Brainard, as you engage in the CRA process, you heard from a great many stakeholders, from your own staff, the problems with CRA. What was the problem we were trying to address? What was really important to get right and what did you hear along the way that needed fixing?

Brainard  1:29

Well, first of all, thank you, Jesse, for holding this conversation. And thanks to NCRC for all of the engagement of your members in your organization. One of the things that we heard for a long time, from some of the members of your organization and from community groups generally and from banks, that more and more banking services are taking place far from branches, by a mobile via online. And that means less and less of the activity of banks is taken into consideration for the existing CRA role, which of course, was written more than 25 years ago, so not a surprise. So the proposal will scope in a lot more activity that will be within the umbrella of CRA evaluation, including, importantly, areas where there are concentrations of retail lending activity outside of a branch and areas that are just broadly underserved by banks. And I think the proposal tries to make sure that the CRA rule is fit for purpose for the banking system of the future, which in effect will make it more of an investment in the future of these communities and create opportunity for the way that financial services are delivered today rather than the way they were delivered 25 years ago.

Van Tol 3:04

Thank you and Comptroller Hsu, same question from your perspective. You know, what were the problems we’re trying to solve here?

Hsu  3:14

So tack on to what Lael said, thanks for having me in for this conference. There’s a saying faster, alone farther together. And I say that because at the agency level, when I took office, about a year ago, I commenced a review of the OCC 2020 CRA rules, and, you know, sought feedback from a wide range of stakeholders. And the overwhelming feedback was that the agency should work together and develop a joint rule. And that would make the rule better, substantively and more durable. And I think that that was something I heard from bankers from community groups, pretty much everybody. More specifically, there were some elements of that rule, which were positive that, you know, again, in that kind of feedback process. And you know, and people felt very strongly about them, that there was a special section on Native American communities. People talked about the transparency of the eligible activities. There’s some disagreement about the exact things on that list. But the concept of having that kind of transparency to speed things up. You heard a lot about that, in kind of a general embrace of a greater use of metrics, which I think is some people will talk about, though, there was lots of criticism about the metrics that were picked, and how they’re used. But the the idea that you could use take a data driven approach, and be more objective and consistent, I think these are things that were was hearing loud and clear. And then I recall, very early on, Jesse, we had a discussion. You know, I was doing outreach to various groups, and you’re really clear about ‘okay, these are some priorities and concerns that we have about grade inflation, about greater need for consistency and performance,’ things like that. I heard that echoed by some of your members by others. And so we through the interagency process, we’re able to kind of bring all of that to bear on the joint proposal, which I think has made it a lot stronger.

Van Tol 5:13

Absolutely. And Comptroller Hsu,l come back to you, if we’re successful, and there’s a long way to go, the rule is not done. I’m sure there will be hundreds and hundreds of comments issued on the NPR and, and a final rule that come but if the rule is, is successful, if we get CRA done in five years from now, 10 years from now, it’s a success. What’s going to look different in in low and moderate income communities? How is the nature of the banking relationship with communities going to change?

Hsu  5:54

I think that’s the right question to ask. Because, you know, we want to be outcomes focused, we’re not we’re not doing this for the process. We’re doing this for the outcomes. So the outcome we want is the fulfillment of the statutes mandate, right and the banks meet the credit needs of the communities in which they operate, especially those of LMI communities. So what does that mean, concretely? Well, at a really high level, you know, my expectation is that we’re going to see higher levels of care activity, but the way the rule has been constructed, I think you’re gonna see an overall rise in the level of activity. I think you’re also going to see better, more impactful activities. Lael had referred to this, we make, we go to special parts to incentivize a persistent poverty areas, small businesses, like extra small businesses, disaster preparedness, climate resiliency, those are specifically kind of crafted and targeted, to ensure they don’t kind of slip through the cracks that those are those are there. In, in finally, like, we want faster action. And I think that there have been some kind of referring back to the eligible activities. There were some complaints before some of them, a lot of them founded that just took too long. And I think that part of this process here is that if we can have your overall more better and faster as your activities, what you should see is that there’s just a stronger feedback loop between communities and banks. So that through that mix of quantitative, qualitative, and that framework, you’re getting more financial inclusion, more banking, access, more small business development, you go down the list, more affordable housing, more homeownership, those are all the things that we’re striving for.

Van Tol  7:37

Thank you. Vice Chair Brainard, same question, what do you hope will come out of this rule if it is to be successful?

Brainard  7:52

Thank you. So I’m hoping that when I travel around to communities, in different parts of the country, where I don’t currently see banks investing in those communities, whether it be the Pine Ridge Reservation in South Dakota, or Hope, Mississippi, I’m hoping to see the new CRA approach, providing incentives to lead to greater banking services, greater credit to small businesses, and greater community investments, all of which will make for more vibrant communities. And, you know, we will, for the first time have data to identify communities with low levels of community development financing, which would allow us to do an impact assessment of what would the impact of community development investments in that area have. We’ve also thought a lot about the ways that community development activities are defined to make sure that you provide CRA credit only when those activities do not displace or exclude low or moderate income residents from low and moderate income communities. That’s been an important area that we just haven’t had a strong enough screen on. So we propose one. We are trying to provide powerful incentives for investments in affordable housing in those communities investments in climate resilience for the first time. And so our hope is that those kinds of activities which haven’t gotten credit in the past, by giving credit you’ll see more affordable housing, affordable housing that that is in areas that does not displace, but rather serves low and moderate income residents. Investments in climate resilience, for instance, which haven’t previously been given consideration, these are the kinds of changes, over time, we would hope to see.

Van Tol  10:04

Thank you. I’m gonna ask one more question because this was such a such a process. And I feel as though through the process, I got to know each of you a little better your values your commitment to this issue. You know, folks didn’t always agree, but as, as Mike said earlier, coming together, you know, we’re going farther together here. Could you talk a little bit about the process that got you here and how you hope it will transform the collaboration among the three agencies going forward? It occurs to me that this is not just about a rule, but really about how three agencies implement a rule and think about issues. In the same way. What would you hope would come out of the interagency collaboration going forward? And I’ll just see which of you would like to go first on this one.

Hsu  11:05

Sure, so,, you know, the staffs of all three agencies, we each have extremely dedicated, extraordinarily dedicated staff. I think we knew this, I mean, I kind of knew this coming in, but seeing it up close and personal, it is amazing how much experience and how dedicated folks are to making this work. And sometimes those passions manifest in all sorts of ways. And I think the good news here is that there was a very strong desire to kind of achieve that shared objective of strengthening and modernizing the CRA. All the things that Lael mentioned that we’ve been talking through here, because it takes kind of bring all the different experiences, you know, the OCC has a different set of experiences with CRA than the Fed and the FDIC, and putting them together on the table and kind of working that out with all the different touch points we have with NCRC and others, result in a better product. It’s not easy, by any stretch. But I think one thing that I think going forward, what I’m hoping is that because of that collaboration that will continue. And that should hopefully result in better consistency. You know, there’s there’s a number of parts within the rule that do. There’s a lot of quantitative stuff. There’s also a lot of qualitative stuff. And I know there’s concerns about the discretion and judgment on some of those qualitative parts. But if we do it together, that does tend to lead to convergence and consistency, where we can check each other on how we’re doing that. And I think that that will improve your outcomes in trust and transparency into the process. So we get to those outcomes in a way that that are sustainable and durable.

Brainard  12:46

Yeah, I’d certainly echo that we’re standing on the shoulders of our really outstanding expert staffs. But we’re also very much building spirit of collaboration between the three agencies, you know, we worked very hard to come to agreement on every element of this proposal, we also worked very hard to make sure that we had unanimity within each of the decision making structures within each of our agencies. And I think that is going to make this rulemaking more resilient. And, and stronger. And in order to achieve consistency, we can’t stop with the final rule. I think what we learned, as Mike was mentioning, it’s very different to do CRA exams for a bank with literally hundreds of assessment areas than it is to do for a bank that is a community bank in rural areas that are just very different approaches. But we want the banks to be clear that we have the same expectations. And in order to make sure that we really go that last mile and ensuring consistency. So the grading is on a level playing field, we’re going to have to have the staffs of the three agencies working together through the implementation process. And of course, a big piece of this is making sure that to the extent we’re relying on data, we have consistent data collections, we’re sharing that data. So we’ve got a lot of work to do to implement in a consistent way. But I think banks asked for consistency between the three agencies, and they asked for a lot more quantitative metrics. And they certainly get all of that clarity, certainty and consistency across the agencies by virtue of us just taking the necessary time to really agree with each other and work through those differences.

Van Tol 14:57

Absolutely, and you certainly delivered on that and, you know, I’m sure there will be a variety of opinions about it, but really, really, really strong proposed rule and we look forward to engaging on it during the comment period. I want to thank both of you. That’s our time for this video. We do have Acting Chairman Martin Gruenberg will be speaking to the conference and members of the three banking agencies staffs will be discussing the rule in greater detail. I’m sure we could talk for another hour, but we wanted to give each of you a chance to address the NCRC audience. So thank you once again, for your time for your service. Madam Vice Chair and Acting Comptroller.

Hsu 15:46

Thanks so much, Jesse.

Brainard 15:47

Thank you

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