Overview
Title
Community Reinvestment Act Regulations Asset-Size Thresholds
Agencies
ELI5 AI
The Community Reinvestment rules tell banks how big or small they are supposed to be based on their money size. Starting in 2025, a "small bank" has less than $1.609 billion, and an "intermediate small bank" has between $402 million and $1.609 billion.
Summary AI
The Federal Reserve System and the Federal Deposit Insurance Corporation have announced new asset-size thresholds for categorizing banks under the Community Reinvestment Act for 2025. Starting January 1, 2025, a "small bank" is defined as one with assets less than $1.609 billion, while an "intermediate small bank" is one with assets between $402 million and $1.609 billion, based on the inflation-adjusted increase of 2.91% in the Consumer Price Index. These changes will remain in effect through December 31, 2025.
Abstract
Under their Community Reinvestment Act (CRA) regulations, the Board and the FDIC (collectively, the Agencies) annually adjust the asset-size thresholds used to define "small bank" and "intermediate small bank." As required by the CRA regulations, the adjustment to the threshold amounts is based on the annual percentage change in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI- W). Applying this annual inflation adjustment methodology, the Agencies are announcing that, from January 1, 2025, through December 31, 2025, "small bank" will mean a bank that, as of December 31 of either of the prior two calendar years, had assets of less than $1.609 billion; and "intermediate small bank" will mean a small bank with assets of at least $402 million as of December 31 of both of the prior two calendar years and less than $1.609 billion as of December 31 of either of the prior two calendar years.
Keywords AI
Sources
AnalysisAI
The recently released document in the Federal Register pertains to adjustments in the asset-size thresholds under the Community Reinvestment Act (CRA) regulations for 2025. This effort is jointly conducted by the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (FDIC). The announcement specifies that starting January 1, 2025, a "small bank" will be defined as a bank with assets of less than $1.609 billion. Additionally, an "intermediate small bank" will refer to those whose assets range between $402 million and $1.609 billion, all based on an inflation adjustment linked to a 2.91% increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). These thresholds are set to remain effective through December 31, 2025.
Significant Issues and Concerns
One central issue highlighted in the document is the legal uncertainty surrounding the Community Reinvestment Act regulations. The final rule intended to modernize these regulations has been halted due to ongoing litigation. This situation implies there could be potential delays or modifications in the regulatory framework, which can create uncertainty for banks and other stakeholders reliant on predictable regulatory guidelines.
Moreover, while the document mentions the use of the CPI-W for adjusting the asset-size thresholds, it does not provide a rationale for selecting this particular index. For those unfamiliar with the intricacies of economic indices, this may require further explanation to grasp why this specific measure was chosen over others.
Another point of concern is the departure from the traditional rulemaking process to announce these annual inflation adjustments. Historically, such changes were communicated through a formal rulemaking process. The shift to using a mere notice, driven by the litigation over the modernized CRA regulations, might lead to confusion among stakeholders accustomed to the previous method.
Impact on the Public and Specific Stakeholders
For the general public, particularly those with a high school education, the direct impact of this announcement might seem obscure. However, the CRA regulations serve the broader purpose of ensuring that banks meet the credit needs of the communities they serve. Changes in the definition of bank sizes can influence how these financial institutions operate and the extent of their obligations under the CRA.
For the banking industry, particularly small and intermediate small banks, these adjusted thresholds could have significant implications. Banks on the cusp of these asset-size categories might experience changes in their compliance obligations. This could affect their operational strategies and community engagement plans, highlighting the importance of staying abreast of regulatory adjustments.
Finally, there's an ample provision of contact information for inquiries, yet it lacks specificity concerning which agency or individual can address particular concerns. This could be streamlined for efficiency and clarity, ensuring stakeholders can easily obtain the information relevant to their needs.
In summary, while the adjustment of asset-size thresholds under the CRA is an annual practice, the complexities surrounding current regulatory uncertainties and communication methods underscore the need for ongoing engagement and adaptability among all stakeholders.
Financial Assessment
The document pertains to adjustments in the asset-size thresholds for banks under the Community Reinvestment Act (CRA) regulations. These thresholds define what constitutes a "small bank" and an "intermediate small bank." The adjustments are crucial for determining which banks are subject to specific regulatory requirements under the CRA.
Summary of Financial References
The adjustments are based on the annual percentage change in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). For the period from January 1, 2025, through December 31, 2025, a "small bank" is defined as a bank with assets of less than $1.609 billion as of December 31 of either of the prior two calendar years. An "intermediate small bank" is defined as a small bank with assets of at least $402 million as of December 31 of both of the prior two calendar years and less than $1.609 billion as of December 31 of either of the prior two calendar years.
Inflation Adjustment and its Methodology
The financial references here are primarily concerned with adjusting the thresholds for inflation using the CPI-W. During the 12-month period ending in November 2024, the CPI-W increased by 2.91%. This increase necessitated the adjustment of the asset-size thresholds to align with inflation, which is a routine process undertaken by the banking agencies to ensure that the defined categories of banks correspond to economic changes over time.
Implications and Issues
The use of the CPI-W for adjusting asset-size thresholds suggests that inflation significantly impacts the categorization of banks. However, the rationale behind choosing the CPI-W over other potential indices is not clearly discussed, which might lead to questions about the most appropriate measure of economic change for these adjustments.
Furthermore, the document mentions that due to ongoing litigation, the agencies are announcing these adjustments through this notice rather than through the usual rulemaking process. Historically, such announcements have been made via regulatory amendments. This deviation from the norm could bring about uncertainty or confusion among banks and other stakeholders accustomed to the usual process.
Lastly, while the contact information for further inquiries is extensive, it does not specify which aspects of the notice each contact is responsible for handling, potentially causing some confusion for inquiries related to financial ramifications or implementation issues resulting from the adjusted thresholds.
In essence, while the adjustments represent a financial recalibration based on inflation, stakeholders may seek more clarity on the rationale for the chosen methodology and the implications of using a notice instead of the customary rulemaking process for these annual adjustments.
Issues
• The document mentions that the final rule to strengthen and modernize Community Reinvestment Act regulations is currently enjoined due to litigation. This could mean potential delays or uncertainties in the regulatory framework.
• The process of using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for adjusting asset-size thresholds is outlined, but the rationale behind choosing this specific index over others is not provided, which might require clarity for those unfamiliar with the methodology.
• The document mentions that due to the litigation, the agencies are using this notice rather than a rulemaking to announce adjustments, which is a departure from the historical practice. This could lead to confusion among stakeholders used to the previous rulemaking process.
• There’s potential complexity and legal jargon that could make it difficult for individuals without a legal or financial background to fully understand the implications of the asset-size thresholds adjustment and its impact.
• The announcement timeframe for the changes (from January 1, 2025, through December 31, 2025) is clear, but potential implications or expected outcomes from these adjustments are not discussed, which might be necessary for a comprehensive understanding of the impact on banks.
• The contact information provided for further inquiries is extensive, but there’s no clarity on which specific aspects or issues each contact can address, potentially causing confusion for those seeking specific information.
• The document references external documents and websites for further information, assuming that readers have access to and can easily navigate these resources, which might not always be the case.