||Assessment of Community Reinvestment Activities
On January 1, 1986, with the implementation of Michigan's interstate
banking statute, Section 130b of the Michigan Banking Code, the Bureau
entered a new era of responsibility for community reinvestment. This statute
provides that in connection with an application filed by a bank holding
"...the commissioner shall assess the composite record of the
bank subsidiaries of the bank holding company in meeting the credit needs
of the communities in the state in which the bank subsidiaries are located,
including low and moderate income neighborhoods, consistent with the safe
and sound operation of the bank subsidiaries of the bank holding company.
In assessing the record of the bank subsidiaries of the applicant, the
commissioner shall consider the factors considered by the appropriate
federal financial supervisory agency pursuant to regulations promulgated
under the community reinvestment act of 1977..."
Thus, the Bureau began an evolutionary process of reassessing the meaning,
significance and application of the CRA.
Section 802(a)(3) of the Community Reinvestment Act of 1977 states:
"The Congress finds that-
(1) regulated financial institutions are required by law to
demonstrate that their deposit facilities serve the convenience and needs
of the communities in which they are chartered to do business;
It is the purpose of this title to require each appropriate Federal financial
supervisory agency to use its authority when examining financial institutions,
to encourage such institutions to help meet the credit needs of the local
communities in which they are chartered consistent with the safe and sound
operation of such institutions."
(2) the convenience and needs of communities include the need for
credit services as well as deposit services; and
(3) regulated financial institutions have continuing and affirmative
obligation to help meet the credit needs of the local communities in
which they are chartered.
For nearly ten years the Financial Institutions Bureau (Bureau) had
little involvement with community reinvestment beyond the receipt of annual
reports of residential and home improvement lending activity by institutions
doing business in Michigan. This annual report is required pursuant to
Michigan's Public Act 135 of 1977 (PA 135), which provides for gathering
Community groups in this state have voiced concerns that the CRA and
PA 135 have not been effectively implemented by federal and state regulators,
respectively. In other words, financial institutions have not been induced
by the regulators to be responsive to the credit needs of the local communities,
and in particular, the needs of low and moderate income groups within
the communities. Further, community groups have complained that the federal
and state regulatory processes have been inaccessible to them for voicing
The Bureau, in an effort to fulfill its statutory responsibilities,
has weighed, and continues to weigh, the language of the Michigan interstate
banking statute and of the Community Reinvestment Act for intent. Historically,
community attention has been focused on a financial institution's activity
in residential mortgage and home improvement lending. This focus is largely
attributable to the redlining concerns of community groups and the reporting
requirements of the Home Mortgage Disclosure Act (HMDA) and PA 135, which
address housing related lending activity. However, meeting the credit
needs of the community is a much broader concept than just meeting the
housing related credit needs of the individual. Based upon this understanding,
the Bureau deems it necessary to consider an institution's overall lending
activity in its community including, but not limited to, residential mortgage
and home improvement lending. Further, a simple analysis of loans originated
by number and size does not provide an indication of the credit needs
which exist. The credit needs of any community are likely to be more than
just one type or several types of loans.
The extent of a community's credit needs can only be known when a conscientious
effort is made by management of an institution to determine such needs.
The Bureau recognizes the identification of needs as the essential, primary
step which an institution must undertake before it can expect to adequately
address the credit needs of the community. Each community is unique, and
each will have its own set of needs. Also, it is likely that more than
one community will exist within a given city or defined market area.
Many types of needs will be disclosed in the needs identification process.
Some of the identified needs will be properly addressed by the services
and products of a financial institution. Other needs will be better addressed
by other community members, organizations or governmental agencies.
Additionally, a financial institution might not have existing products
or services to meet those needs identified. In such cases, it may be appropriate
to develop new services or products. However, new product development
will not be expected if such products would not conform with the institution's
typical business operations and product lines. It will be expected that
an existing product line will be accessible to all segments of the respective
After management has identified the credit needs and has determined
which credit needs will be targeted by the institution, the goal of the
CRA can be addressed effectively. The goal, meeting the credit needs of
the community, is attained by the successful delivery of products and
services which meet identified needs. The level of success which management
of a financial institution achieves in meeting an identified need can
be demonstrated by the volume of product or service delivered to meet
the need. Therefore, it is important for management to maintain a system
for documenting, summarizing and reviewing the efforts which are made
to that end.
Thus, the process for an institution to help meet the credit needs of
the community which it serves is one of basic market research, followed
by product and service development, and finally, product and service delivery.
The Bureau views a financial institution's role in a community as essential
and integral to the stability and growth of the community. By assertively
addressing this role, an institution can strengthen the fabric of a community
through constructive, responsible leadership and participation in development
of the community as a whole rather than limited segments of the community.
In all instances the precept of safe and sound lending practices and
business operations must be observed. Meeting the credit needs of a community
on a continuing basis can be accomplished only by promoting creative thoughts
and actions which result in financially sound programs in that community.
In conclusion, the Bureau, in its review of interstate applications,
will be attentive to the process which an applicant has developed and
utilized and to the conclusions reached by the applicant in determining
how to fulfill its obligation to help meet the credit needs of the communities
in which it is chartered.
||Eugene W. Kuthy, Commissioner
||June 15, 1989