January 8, 2020 / 3:04 PM / 14 days ago

U.S. Fed at odds with bank regulators on community lending standards

WASHINGTON, Jan 8 (Reuters) - A top official with the U.S. Federal Reserve said Wednesday that bank regulators should pursue a more nuanced approach to updating community lending standards for banks.

In prepared remarks, Fed Governor Lael Brainard argued a new uniform standard proposed by other U.S. banking regulators would fail to account for differences across communities nationwide, and also said regulators should apply an additional test to larger banks.

Her remarks come as U.S. regulators are endeavoring to update rules around the 1977 Community Reinvestment Act, which requires regulators to assess how well banks are serving the needs of lower-income communities and were last updated in 1995.

The Fed shares responsibility for enforcing the CRA with two other bank regulators, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. But those two regulators proposed a rule update in December without the Fed’s support, which would establish a uniform standard to evaluate all banks’ efforts to support lower-income communities.

But Brainard, who is in charge of the Fed’s attempt to update the rule, argued against such a broad-based approach, saying it failed to capture differences in communities with different amounts of lower-income families, as well as changes in the business cycle.

She also said larger banks should also face a broader test on how they support communities overall, as opposed to simply evaluating their retail lending.

She said she made the Fed’s preferred approach public as part of an effort to get all three regulators to agree on a compromise. (Reporting by Pete Schroeder Editing by Chizu Nomiyama)

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