News Release: Revised CRA Regulations Have Teeth, Encourage Community Resilience Investments


October 24, 2023

William Pierre-Louis, Jr.
(347) 499-7874

Revised CRA Regulations Have Teeth, Encourage Community Resilience Investments

Washington, D.C. — The Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation released a joint final rule to revise the regulations implementing the Community Reinvestment Act (CRA). This decision caps a long-awaited effort to modernize the rules to reflect the changing structure of the banking system and needs for community loans, investments, and services. 

The final rule includes new categories for community investment, including disaster preparedness and weather resiliency. It sets out a more rigorous rating criteria that aims to cut down the excessive grade inflation that has long allowed poor-performing banks to avoid accountability. The success of these changes will depend on rigorous implementation by the regulators.

“We appreciate the work of the regulators in modernizing the Community Reinvestment Act to take into account online banking, with additional provisions to hold banks accountable for fair lending violations and denying CRA credit to place-based initiatives that displace tenants,” said Caroline Nagy, senior policy counsel for housing, corporate power, and climate justice at Americans for Financial Reform Education Fund. “Nonetheless, we are disappointed at the lack of explicit race-based criteria to directly address harms caused by decades and decades of racist banking practices and the unwillingness of the regulators to expand their definition of displacement to all CRA-covered activity.”

Notably, banking regulators failed to update CRA regulations to use race as a factor in evaluating bank performance and identifying credit-eligible investments. While the final rule’s omission of race as a factor likely reflects current judicial interpretations regarding race-based policy, its exclusion fails to address the CRA’s original intent to redress harms from racist redlining and financial discrimination. 

“The CRA has been in desperate need of modernization, and its inclusion of ‘disaster preparedness and weather resiliency activities’ under ‘community development’ will help push climate investment towards vulnerable communities, and help banks understand which activities are eligible for CRA credit,” said Jessica Garcia, climate finance policy analyst at Americans for Financial Reform Education Fund. “Regulators and banks can better serve communities if they acknowledge growing climate risks and evaluate the full range of benefits conferred by resilience and clean energy investment, including climate mitigation, improved health outcomes, and energy savings.”

Eligible community development projects can now include green space for heat resilience, community solar, microgrid, and battery projects. Regulators will provide a non-exhaustive list of suitable activities under “disaster preparedness and weather resiliency” following this final CRA regulation. We note that the final rule substitutes the proposed term “climate resiliency” with “weather resiliency,” but it should be clear to all parties that weather disasters are increasing in frequency and severity due to climate change—partly due to banks’ continued financing of fossil fuel expansion—and that underserved communities face the highest risks. 

This rule, along with the Principles for Climate-related Financial Risk Management for Large Financial Institutions being finalized shortly, will be critical for aligning the financial system with safe and equitable climate investment needed to protect communities and ensure the successful implementation of the Inflation Reduction Act. A coordinated approach by regulators will enhance understanding and compliance, benefiting both consumers and banks.