Industry Letters

Consideration under the Community Reinvestment Act of Activities by Limited Purpose Commercial Bank Affiliates of Savings Banks

June 25, 2001

TO the CRA and Compliance Officer(s) of the Institution addressed:

Recently, the Banking Department has received a number of applications by savings banks (or their holding companies), to charter commercial banks for the sole purpose of receiving municipal deposits. In the typical case, the application for the new charter states that the bank does not plan to take retail deposits and will engage only in incidental (if any) retail lending. Accordingly, these limited purpose commercial institutions would not normally be expected to engage in CRA-type activities in the ordinary course of business.

However, since Section 28-b of the Banking Law and Part 76 of the General Regulations of the Banking Board (Community Reinvestment Act Requirements) do not provide for any specific exceptions from coverage for banking institutions, the record of the commercial affiliate would need to be considered in connection with an application that customarily receives a CRA review. The issue, then, is how the Department can best fulfill its statutory obligation to evaluate the CRA performance of the newly formed commercial entity, while also recognizing the limited nature of its activities.

Upon thorough consideration, it has been determined that, going forward, the Banking Department will evaluate the CRA performance of this specific type of limited purpose institution together with, and in the context of, the Department's biennial Performance Evaluation of the affiliated thrift institution. The Department will issue a single Performance Evaluation and rating that takes into consideration the size of the combined institution, but also recognizes that the increase in size is attributable solely to municipal, and not retail deposits. Thus, while addressing the statutory requirement that the commercial entity be considered, this approach will clearly reflect the unique "performance context" for this type of institution. In order to promote consistency in the examination process overall, the Department will also issue single report regarding the institution's compliance with fair lending and other consumer compliance laws.

It should be noted that the approach described above will be utilized exclusively in connection with all commercial bank affiliates of thrift institutions that have the limited purpose of accepting municipal deposits and doing only incidental (if any) lending. In connection with each Performance Evaluation, the Department will re-evaluate the institution's structure or business plan to determine whether any changes have occurred that would warrant a different approach.

If you have any questions or comments about this, please do not hesitate to contact Nelson Nkabinde, Director of the Community Reinvestment Monitoring Unit, at (212) 619-6589, or myself, at (212) 618-6634. Thank you for your consideration.

Very truly yours,

Edward B. Kramer
Deputy Superintendent of Banks
Consumer Services Division