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Explanatory All Institutions Letter

December 26, 2006

TO THE INDIVIDUAL OR INSTITUTION ADDRESSED:

Re: Adoption of Amendments to Part 76 of the General Regulations of the Banking Board (Compliance With Community Reinvestment Act Requirements)

The Banking Board has adopted the attached amendments to Part 76 of its General Regulations. The amendments will become effective upon publication in the State Register, which is expected to occur on January 10, 2007. An emergency regulation in substantially similar form first became effective September 1, 2005.

Part 76 establishes the framework and criteria by which the Banking Department assesses a banking institution’s record of helping to meet the credit needs of its entire community, including low- and moderate-income neighborhoods. The Banking Department is required by sections 28-b, 225 and 413 of the Banking Law to take this record into account in evaluating certain applications by banking institutions.

As a matter of history and precedent, the performance criteria specified in Part 76 have been modified from time to time to keep them substantially similar to the requirements contained within the regulations promulgated by the member agencies of the Federal Financial Institutions Examination Council (FFIEC) to implement the federal Community Reinvestment Act of 1977 (“federal CRA”).

On July 19, 2005, the Federal Deposit Insurance Corporation (“FDIC”), the Office of the Comptroller of the Currency (“OCC”), and the Board of Governors of the Federal Reserve System (“Federal Reserve”) jointly adopted material amendments to their respective implementing regulations for the federal CRA. These amendments became effective September 1, 2005. In the interest of maintaining compatibility between Part 76 and the federal CRA regulations, the Banking Board is adopting a series of conforming amendments to Part 76.

The Department believes that these amendments will maintain the relevance of Part 76 while neither compromising its efficacy, nor imposing additional regulatory burden on the banking institutions examined by the Department. Collectively, the amendments will enable the Banking Department to clarify its evaluation standards, maximize the attention paid to under-performing institutions, and reaffirm its commitment both to CRA and to low- and moderate-income individuals and communities.

The amendments to Part 76 include three substantive changes, along with a series of less significant “housekeeping” updates. Each of the amendments is described in a table that is attached to this letter.

The first significant amendment raises the asset threshold for “small banking institutions.” Previously, a “small banking institution” was any New York State-chartered banking institution with total assets below $250 million that was not part of a bank holding company with total banking assets of $1 billion or greater.

Consistent with changes adopted in July by the FDIC, the Federal Reserve and the OCC, the amendments increase the asset threshold for “small banking institutions” to $1 billion, without regard to an institution’s holding company status. In addition, the amendments track changes in the federal regulations by designating banks with assets between $250 million and $1 billion as "intermediate small banking institutions" and by establishing a new set of CRA performance criteria for institutions so designated. In essence, the evaluation criteria include the existing small bank lending test, combined with the existing community development test that is applied to limited-purpose and wholesale institutions. It is important to note that only “intermediate small banking institutions” will be affected by these changes. The Department will continue to evaluate all other institutions using the existing performance tests contained within Part 76.

One principal reason for raising the “small banking institution” asset threshold and creating a unique set of evaluation criteria for “intermediate small banks” is that the federal regulators have eliminated CRA data reporting requirements for “intermediate small banks” and, in doing so, have made it impractical for the Department to continue applying the Large Bank performance criteria to banks in this asset range. Also, the rule recognizes the existence of a middle ground between the smallest local banks and larger regional, statewide, or multi-state institutions. Failing to change Part 76 to conform to the changes in the federal CRA regulations would have created material conflicts between state and federal CRA performance criteria, and thus would have significantly increased regulatory burden for the affected institutions.

The second significant amendment to Part 76 broadens the definition of “community development” to include efforts to revitalize and stabilize underserved or distressed middle-income rural areas and designated disaster areas. Beyond that, the existing definition of “community development” remains intact.

The last significant amendment to the regulation replaces the current requirement that the Department conduct CRA examinations once every two years with more flexible CRA exam scheduling guidelines. In particular, the amendment will allow the Department to align its examination schedule with the schedules of its federal counterparts, to the extent feasible.

By conducting examinations concurrently with federal examiners, the Department can significantly reduce the regulatory burden that would otherwise be imposed on banking institutions by non-concurrent examinations.

The amended examination cycle would offer the greatest regulatory relief to institutions with assets below $250 million. For these smallest of institutions, a composite CRA rating of “Satisfactory” or “Outstanding” will extend their examination cycle to four or five years, respectively. This risk-based approach to scheduling examinations will provide an incentive for small banks to perform well, and will also allow the Department to focus its resources on under-performing institutions or institutions with larger CRA obligations.

For institutions with total assets greater than $250 million, the Department can extend its examination cycle on a discretionary basis from 2 years to a maximum of 3 years. In addition to minimizing regulatory burden by facilitating coordination of examination scheduling with the federal regulatory agencies, the extended exam cycle will allow additional time for aggregate data to become available for use in evaluating a bank’s performance relative to that of all banks in its market area.

Very truly yours,
Sam L. Abram
Secretary of the Banking Board

Part 76 – Compliance with Community Reinvestment Act Requirements
Amendments Adopted Effective
January 10, 2007

Item

Description of Amendment

Paragraphs Affected

Raise the “Small Banking Institution” Asset Threshold

Old Threshold = $250 million
New Threshold = $1 billion (subject to annual adjustment)

Definition of “small banking institution” has been updated to reflect this change

Banking institutions with assets between $250 million and $1 billion are categorized as “Intermediate Small Banks”

Exam Standards = apply the existing Small Banking Institution performance criteria plus a new Community Development Test

Banking institutions with assets less than $250 million are unaffected by this change

Exam Standards = apply the existing Small Banking Institution performance criteria

Holding company status is no longer considered in determining whether an institution is treated as a small banking institution.

Previously, small banking institutions owned by a holding company with banking and thrift assets of $1 billion or more were examined using the large banking institution criteria.

§ 76.2(t/u)

§76.12(a)(2)
76.12(c)

§76.12(a)(1)
76.12(b)

§ 76.2(t/u)

Expand the Definition of “Community Development”

Existing definition generally remains intact, with its five broad categories of activities that qualify as community development
One category, “activities that revitalize or stabilize low-or moderate- income geographies,” has been expanded

No longer restricted to LMI geographies
Community development now includes efforts to revitalize or stabilize:

LMI areas (as before)
Designated disaster areas
Distressed or underserved middle-income rural areas, as identified annually by the FFIEC’s member agencies

§ 76.2(f)(4)
§ 76.2(f)(4)

3	*Harmonize the Department’s Examination Frequency with the Federal Cycle* Bring the Department’s examination cycle into closer alignment with that of its Federal counterparts Current Requirement: Part 76 requires biennial examinations for all institutions Proposed Requirements: Large Banking Institutions: examine once every 24 to 36 months, as determined by the Superintendent Small Banking Institutions with total assets below $250 million: risk-based exam scheduling as follows: “Outstanding” = 60-month cycle “Satisfactory” = 48-month cycle Other Ratings = 24- to 36-month cycle, as determined by the Superintendent Other Small Banking Institutions: 24- to 36- month cycle, as determined by the Superintendent Wholesale Banks: 24- to 36-month cycle, as determined by the Superintendent Part 76 now states the Department’s intention to conduct CRA examinations concurrently with its Federal counterparts, to the extent feasible.	§ 76.5(a) § 76.5(a) § 76.5(a) § 76.5(a) § 76.5(a)
4	*Housekeeping Amendments*
4a	*2000 Census Updates* Amend Part 76 to reflect current Census terminology Eliminate references to block numbering areas (BNAs) BNAs no longer exist. Insert a definition for metropolitan division Replace references to primary metropolitan statistical areas (PMSAs) with references to metropolitan divisions In effect, metropolitan divisions have replaced PMSAs. Removals and insertions do not occur on a 1:1 basis because metropolitan divisions are not included within the definition of Metropolitan Statistical Area, as PMSAs had been. For the sake of clarity, additional references to Metropolitan Divisions were necessary.	§ 76.2(j) § 76.2(q) § 76.2(b)(1) 76.2(b) 76.2(q/r) 76.6(b) 76.6(c)(1)
4b	*Service Test Consideration for Banking Development Districts* Amend 76.10(f), Service Test: Other Performance Criteria, to include explicit coverage for a bank’s efforts to establish a Banking Development District (“BDD”) Brings Part 76 into line with existing BDD program guidance regarding CRA consideration.	§ 76.10(f)

Provide Examples of Discriminatory or Illegal Credit Practices that will Adversely Affect CRA Ratings

Amend 76.5 to include a non-exhaustive list of statutes that will be considered in determining whether a bank’s CRA rating should be lowered on the basis of consumer compliance or fair lending violations.

Statutes identified include:

Section 296A of the NYS Executive Law
Section 6-l of the NYS Banking Law
Equal Credit Opportunity Act
Fair Housing Act
Federal Trade Commission Act
Truth in Lending Act – provisions regarding the right of rescission

§ 76.5(b)

Establish a clear connection between Numerical and Nominal Ratings

Part 76 refers to a 1-to-4 rating system, but does not assign names to the various numbers.
As a matter of practice, we refer to numerical ratings as follows:

“1” = “Outstanding”
“2” = “Satisfactory”
“3” = “Needs to Improve”
“4” = “Substantial Noncompliance”

The proposed amendments establish a clear connection between the numerical rating and the name commonly associated with that level of performance.

§ 76.5(a)
§ 76.5(a)
§ 76.5(a)
§ 76.5(a)

Clarify Criteria for Evaluating an Institution’s Branch Distribution

As a matter of policy, the Department provides special consideration of branches located adjacent to low- and moderate-income census tracts

The proposed amendment would memorialize the Department’s practice and clarify the circumstances under which special consideration will be given.

§76.10(d)(1) 76.10(d)(2)

Specify Which Data Must Be Maintained for Elective Consideration

Banks have the option of providing non-mandated information for examiner consideration.
Currently, Part 76 makes vague references to banks the data needed for evaluation by the Department, without specifying which data fields are required.

The proposed amendment establishes, by reference to Federal Reserve Regulation BB, a baseline set of data fields that must be maintained and reported for exam consideration.

§ 76.8(a)(1) 76.8(c)(1) 76.8(d)(1)

Update References to the Banking Department’s Address

§ 76.2(u/v) 76.2(v/w)

Reaffirm Commitment to Applying Part 76 Performance Criteria

Replace the word “may” with the word “will” in various paragraphs to make it clear that the Department plans to apply the stated performance criteria uniformly.

§ 76.7(b) 76.8(a)(1)

Miscellaneous Corrections & Updates

Re-numbered various sections, as needed.
Removed “renewals” from the list of lending activities considered, at the bank’s option, as secondary factors in the lending test

Renewals are already included within the primary performance factors

Added the words “community development” in front of the word “loan” to clarify the eligibility criteria for lending by consortia and third parties.
Corrected an inaccurate cross-reference in 76.13(g)(1)
Miscellaneous insignificant corrections (e.g., typographical errors)

§ 76.8(a)(2)

§ 76.8(d)

The amendments do not include certain changes that were adopted unilaterally by the Office of Thrift Supervision. Attempting to reflect these changes in the amendments to Part 76 would be cumbersome and unnecessary, because they affect, at most, four institutions regulated by the Department, and in many cases affect only a single institution.

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