Pub. 14 2019-2020 Issue 5

NEBRASKA BANKERS ASSOCIATION 29 Elizabeth K. Madlem has returned to Compliance Alliance as Associate General Counsel & Compliance Officer. Prior to her return to C/A, she served as both the Operations Compliance Manager and Enterprise Risk Manager for Washington Federal Bank, headquartered in Seattle, WA. She returns with industry expertise and real-world solutions surrounding bank-enterprise initiatives as well as all her prior knowledge of contract law and bank regulatory compliance. An attorney since 2010, Elizabeth was a Summa Cum Laude, Phi Beta Kappa, Delta Epsilon Sigma graduate of Saint Michael’s College in Burlington, VT, and a Juris Doctor from Valparaiso University School of Law in Indiana. on the bank’s balance sheet, or even when they do not result in a new qualifying activity. The changes would ensure that the bank’s balance sheet is reflective of its ongoing commit- ment to CRA, and not just for the next exam. In doing this, the exam-to-exam format would be eliminated, and banks would take on an averagemonth-end approach: investments purchased before the most recent exam would only receive credit based on their monthly average balance during the exam period. Performance Measurements This is a major area of change: banks’ performance evaluations currently are based on their size (small, intermediate and large banks). The new proposal would set general performance standards for evaluating all banks with assets of more than $500 million. The re- quired quantitative targets would be more transparent for achieving “outstanding” or “satisfactory” ratings. From this would be two fundamental tests: a distribution test and an impact test, both evaluated to the specific targets established prior to the beginning of a bank’s evaluation period. Distribution would measure the number of qualify- ing loans to LMI individuals, small farms, small businesses and LMI geographies. Impact would measure the value of the bank’s qualifying activities related to its retail domes- tic deposits. One significant change that could affect tax incentives is that the bank would be evaluated on both the number of CRA-eligible loans and investments and the total amount of loans and investments to communities. It is important for banks to participate in the 60-day comment period before any potential finalization of reform takes place. Reactions remain mixed, with the potential of using the aggregate balance sheet ratio causing most con- cerns. It is likely implementation would be phased over sev- eral years to allow for institutions to prepare. Additionally, as the Federal Reserve did not endorse the proposed draft, it is important for banks to keep in mind that any proposals do require unanimous consent among all three regulators. But a clay model is on the table; we’re just waiting to see if it hits the assembly line.  1 Clozel, Lalita. “Bank Regulator Pitches Low-Income Lending Rule Changes on U.S. Road Trip.” The Wall Street Journal Aug. 19, 2019. https://www.wsj.com/articles/bank-regulator-pitches-low-income- lending-rule-changes-on-u-s-road-trip-11566229418 2 FFIEC Interagency CRA Rating Search: https://www.ffiec.gov/%5C/ craratings/default.aspx