Large Bank Procedures Flashcards
What are the three performance criteria for a large bank?
Lending test
investment test
service test
True or false:
Community contacts may be combined to cover more than one institution in a given market.
True
Large institutions are required to collect and report what CRA data?
- Small Business Loan data
- Small farm loan data
- CD loan data.
Although large banks are subject to CRA data collection requirements, they cannot be examined under large bank examination procedures until they have what?
At least one full year of collected data.
True or false:
Any size institution can opt to be examined as a large institution.
False: Any institution may opt for this; however, they must collect and report the required CRA loan data.
Banks that do not collect and report the required data cannot be examined under large bank procedures, even if they wished to.
For interstate institutions, what AAs must be reviewed using full scope examination procedures?
A minimum of 1 AA from each state, and
A minimum of one AA from each Multi-state MSA/MD
Must be reviewed using the full scope exam procedures.
What factors should be considered when selecting AAs for a full scope review? (10)
a. The lending, investment, and service opportunities in
the different assessment areas, particularly areas where the need for bank credit, investments and services is significant;
b. The level of the institution’s lending, investment, and service activity in the different assessment areas, including in low- and moderate-income areas, designated disaster areas, or distressed or underserved non-metropolitan middle-income geographies
c. The number of other institutions in the different
assessment areas and the importance of the institution
under examination in serving the different areas, particularly any areas with relatively few other providers of financial services;
d. Comments and feedback received from community
groups and the public regarding the institution’s CRA performance;
e. The size of the population;
f. The existence of apparent anomalies in the reported
CRA or HMDA data for any particular assessment area(s);
g. The length of time since the assessment area(s) was last examined using a full scope review;
h. The institution’s prior CRA performance in different
assessment areas;
i. Examiners’ knowledge of the same or similar
assessment areas; and
j. Issues raised in CRA examinations of other institutions and prior community contacts in the institution’s assessment areas or similar assessment areas.
What information should be reviewed when establishing performance context? (6)
- demographic, economic, and loan data for each AA, compared to MSA/MD, county or state data. To determine lending investment and service opportunities.
- Call report, UBPR, reports and prior CRA PEs to understand bank ability and capacity and any limitations due to size, financial condition, economic conditions etc.
- discussions with management about local community, economy, opportunities, and needs. Also about business strategy, lending capacity, etc.
- Community contact information
- Public file comments
- Data from similarly situated banks.
What is a similarly situated bank? (5)
Similar in terms of:
Size Financial Condition Product offerings Business strategy Serve the same or similar AA
How can information from similarly situated banks benefit the PE? (3)
Information could help identify:
- Lending and CD opportunities in the AA
- Constraints affecting the opportunities to make safe and sound loans, CD loans, investments, or services.
- Successful CRA related product offerings or activities used by other lenders serving the same or similar AA.
When reviewing a bank’s AA, examiners must insure the AA meets what standards? (6)
Ensure the AA:
a. Consists of one or more MSAs/MDs or contiguous political subdivisions (i.e., counties, cities, or towns);
b. Includes the geographies where the institution has its
main office, branches, and deposit-taking (Automated
Teller Machines (ATMs), as well as the surrounding
geographies in which the institution originated or
purchased a substantial portion of its loans;
c. Consists only of whole census tracts;
d. Consists of separate delineations for areas that extend substantially across MSA/MD or state boundaries
unless the assessment area is in a multistate MSA/MD;
e. Does not reflect illegal discrimination; and
f. Does not arbitrarily exclude any low- or moderate-income area(s) taking into account the institution’s size,
branching structure, and financial condition.
What should examiners do if a bank’s AA fails to comply with the established criteria?
Develop, based on discussions with management, a revised assessment area(s) that complies with the criteria. Use this assessment area(s) to evaluate the institution’s performance, but do not otherwise consider the revision in determining the bank’s rating.
What should be reviewed to identify which loans should be evaluated under the lending test? (3)
- Most recent HMDA and CRA disclosure statements, Interim HMDA LAR and CRA loan data collected.
- sample of consumer loans if consumer lending represents a substantial majority of the bank’s business
- Any other info the bank chooses to provide (small business loans secured by non-farm residential RE, HELOCs not reported for HMDA, unfunded commitments, outstanding loans, loan distribution analysis conducted by bank.)
Under lending test procedures, when testing a sample of loan files to verify the accuracy of data collected and/or reported by the bank, examiners should also ensure what?
Ensure:
- affiliate loans reported are not also attributed to the record of another affiliate subject to CRA.
- Loans reported as CD loans meet the definition of CD loans. And ensure CD loans are not reported as HMDA, small business, small farm, or consumer loans. And ensure, Participation amounts reported are accurate against Third parties and affiliates.
- all consumer loans in a particular loan category have been included when the bank collects and maintains the data for one or more loan categories and has elected to have the data evaluated.
When evaluating geographic distribution under the lending test the analysis should consider what factors? (7)
a. In and out ratio (excluding affiliate lending)
b. The number, dollar amount, and percentage of each type of loan in the institution’s portfolio in each
geography, and in each category of geography (low-,
moderate-, middle-, and upper-income);
c. The number of geographies penetrated in each income category, as determined in step (b), and the total number of geographies in each income category within the assessment area(s);
d. The number and dollar amount of its home purchase,
home refinancing, and home improvement loans, respectively in each geography compared to the number of one-to-four family owner-occupied units in each
geography;
e. The number and dollar amount of multifamily loans in
each geography compared to the number of multifamily
structures in each geography;
f. The number and dollar amount of small business and
farm loans in each geography compared to the number
of small businesses/farms in each geography; and
g. Whether any gaps exist in lending activity for each
income category, by identifying groups of contiguous geographies that have no loans or those with low penetration relative to the other geographies.
If there are groups of contiguous geographies within the bank’s AA with abnormally low penetration, what can the examiner use to help determine the extent of the bank’s performance?
Examiners can compare the bank’s performance to other lenders within the assessment area (market share reports).
How can market share reports or similarly situated bank comparisons provide insight to GD analysis with abnormally low penetration?
This type of analysis can provide insight if:
a. The reported loan category is substantially related to the institution’s business strategies;
b. The area under analysis substantially overlaps the
institution’s assessment area(s);
c. The analysis includes a sufficient number and volume of transactions, and an adequate number of lenders with assessment area(s) substantially overlapping the institution’s assessment area(s); and
d. The assessment area data is free from anomalies that
can cause distortions such as dominant lenders that are
not subject to the CRA, a lender that dominates a part
of an area used in calculating the overall lending, or there is an extraordinarily high level of performance, in the aggregate, by lenders in the institution’s assessment
area(s).
When forming a conclusion as to whether the bank’s abnormally low penetration in areas would impact GD conclusions, what should examiners consider?
- Bank’s share of reported loans made in LMI geographies vs. middle and upper geographies
- # of lenders in the AA
- reasons for penetration in the area by other lenders but not the bank
- bank’s ability to serve the area in light of performance context
- degree to which penetration by the bank in the AA of a different loan category compensates for the lack of penetration in the identified category.
- degree to which penetration by the bank in other LMI tracts in the AA compensates for the lack of penetration in the subject area.
When performing a borrower profile analysis, what factors should be considered? (5)
- volume of HMDA and consumer loans (if included in the exam) to low, mod, middle, and upper income borrowers.
- lending activity to low, mod middle and upper income borrowers relative to population demographics
- volume of loans originated to small businesses or small farms by loan sizes less than $100M, $100M-$250M, and $250M-$1MM.
- volume of small business and small farm loans to borrowers with GAR of $1MM or less
- If the bank adequately serves borrowers within the AA, and if the in and out ratio impacts the banks service.
What should be determined when reviewing data on the number and amount of the bank’s community development loans? (5)
Especially with regard for performance context, community credit needs, the bank’s lending capacity, and the innovativeness and flexibility of CD lending determine:
- The number and amount of CD loans in the AA or the broader statewide or regional area with a purpose, mandate, and function that serves the geographies or individuals in the AA.
- extent CD lending opportunities have been available to the bank.
- bank’s responsiveness to the opportunities for CD lending
- extent of leadership the bank has demonstrated in CD lending
- innovativeness or complexity involved.
If the bank has been responsive to CD loan needs and opportunities in the AA, what should examiners consider? (2)
- The number and dollar volume of CD loans in the broader statewide or regional area that includes the AA BUT:
- -will not benefit the AA and
- -do not support organizations/ activities with a purpose, mandate, or function that serves the geographies or individuals located within the bank’s AA
-The extend to which these loans enhance the bank’s performance.
When evaluating innovative and flexible lending to LMI borrowers, what should examiners consider? (2)
- Degree to which the loans serve LMI borrowers in new ways or loans serve groups of borrowers not previously served by the bank
- the success of each product, including number and dollar volume of loans originated during the review period.
Examiners should summarize conclusions regarding the bank’s lending performance under what criteria? (5)
- Lending activity
- Geographic distribution
- Borrower Characteristics
- CD lending and
- Use of innovative or flexible lending practices.
What should be considered/evaluated for lending activity under the lending test?
- volume of each type of loan being evaluated that the bank has made or purchased in the AA.
- evaluates the bank’s volume considering the bank’s resources, business strategy, and performance context.
- Notes if the bank conducts lending activities in the bank and other activities in an affiliate in a way that could influence GD or BP.
What four areas should be evaluated under the investment test?
- Volume of qualified investments
- innovativeness and complexity of qualified investments.
- degree to which qualified investments are not routinely provided by other private investors.
- responsiveness of qualified investments to available opportunities.
How should examiners identify the volume of qualified investments? (6)
- review the bank’s investment portfolio and at the bank’s option any affiliates.
- determine any investments in a broader statewide or regional area and in nationwide funds that were made since the previous exam. (Including those sold and matured)
- Consider investments made prior to the previous examination that are still outstanding.
- Also consider qualifying grants, donations, or in-kind contributions of property since the LX that are for CD purposes.
- Determine if the investments have been considered under the lending or service tests and
- whether an affiliates investments have been claimed by another bank.
What must be determined when evaluating a bank’s investment performance? (5)
With regard to performance context, community needs, and institution capacity determine:
- The number and amount of qualified investments in the AA or in a broader statewide or regional area that serve the AA.
- extent qualified investment opportunities have been available to the bank.
- bank responsiveness to needs and opportunities for qualified investments.
- use of any innovative or complex investments in particular those that are not routinely provided by other investors and
- the degree investments serve LMI areas, individuals, designated disaster areas, or distressed underserved geographies.
