FRB: Consumer Affairs Letter CA 06 - 5 - CRA CONSIDERATION FOR COMMUNITY DEVELOPMENT ACTIVITIES IN HURRICANES RITA AND KATRINA DISASTER AREAS

SUBJECT: CRA CONSIDERATION FOR COMMUNITY DEVELOPMENT ACTIVITIES IN HURRICANES RITA AND KATRINA DISASTER AREAS

State member banks have requested guidance concerning the availability of Community Reinvestment Act (CRA) consideration for bank activities that help revitalize or stabilize the disaster areas designated by the President due to Hurricanes Rita and Katrina (the "Hurricanes"). Specifically, banks have asked whether their activities that assist the disaster areas are eligible for CRA consideration if the disaster areas are outside the banks' assessment area(s). As explained below, state member banks located outside the disaster areas will receive consideration for activities that revitalize or stabilize the areas, provided that the banks have otherwise adequately met the needs of their assessment areas.

The CRA regulations encourage financial institutions to help meet the credit and community development needs of their local communities. The regulations give CRA consideration to banks' community development activities, which are loans, investments, or services with a primary purpose of community development. The term "community development" and the loans, services, and investments that qualify as community development activities are defined in Regulation BB 1. In 2005, the definition of "community development" was expanded to include activities that revitalize or stabilize designated disaster areas.

A state member bank's CRA performance is evaluated primarily on the basis of how it helps to meet the credit and community development needs of its local community, or assessment area(s). Regulation BB and the Interagency Questions and Answers recognize that a bank may be able to meet community development needs of its assessment area(s) through activities that benefit a broader statewide or regional area that includes the bank's assessment areas(s), even when the benefit to the assessment area(s) is not direct or immediate. Moreover, if an institution has adequately addressed the needs of its assessment area(s), then it will receive consideration for a community development activity in the statewide or regional area that includes the bank's assessment area(s) regardless whether the activity benefits the assessment area 2. A regional area is ordinarily understood to be as small as a city or county, or as large as a multistate area 3. (See CA 01-7)

Under these rules and interpretations, a state member bank with an assessment area in a location designated as a disaster area because of the Hurricanes that conducts activities that help revitalize or stabilize the disaster area will receive consideration for such activities. A bank with an assessment area outside the disaster area but in the same region as the disaster area will receive consideration for such activities if the bank has already adequately met the needs of its assessment area.

Furthermore, in this limited and specific case, because the Hurricanes caused such widespread devastation and their economic and other effects extended to the entire nation, it is appropriate to give favorable consideration to revitalizing or stabilizing activities in the disaster areas by banks located anywhere in the nation. Therefore, state member banks located outside the region of the disaster areas will also receive consideration for activities that revitalize or stabilize the areas, provided that the banks have adequately met the needs of their own assessment areas. Such activities may include assistance to people displaced by the Hurricanes, including evacuees relocated to other states.

Consideration for activities that assist the disaster areas or affected individuals will be given regardless of the median income of the census tract or the personal income of the individual. However, more weight will be given to activities that assist the entire community, including low- and-moderate-income areas and individuals.