FRB: Consumer Affairs Letter CA 03 - 12 - Examination and Interim Monitoring Event Frequency

Current System policy on the frequency with which consumer compliance and Community Reinvestment Act (CRA) examinations and interim monitoring events must be conducted is found in three separate CA Letters: 97-11, 98-6, and 01-3. The purpose of this letter is to consolidate in one letter and clarify these policies.

An examination mandate will be considered met as long as the start date of the examination is no more than ninety days past the mandated start date. In addition, from time to time Reserve Banks may find it necessary to reschedule a mandated examination or monitoring event beyond ninety days as a result of various unexpected conditions related to staffing, new state member banks, or other factors affecting resources. These situations should be discussed with the appropriate review examiner. Provided the review examiner and Reserve Bank staff reach an agreement on the timing of the examination or monitoring event, the mandate will not be considered "missed".

The interval between examinations will continue to be measured from the start date of one examination to the start date of the next examination. The start date will be defined as the date the onsite portion of the examination begins.

To the extent possible, consumer compliance and CRA examinations should be conducted simultaneously. In certain circumstances it will not be possible to conduct simultaneous examinations. For example, if a small bank's compliance rating is 3, 4, or 5 and the CRA rating is Outstanding, the consumer compliance examination will be conducted in 12 months and the CRA examination will be conducted in 60 months. Reserve Banks should determine the best way to re-synchronize the examinations and should do so as quickly as possible. Frequently, an interim monitoring event can be used as an interim step to re-synchronizing the examinations. The Reserve Bank's review examiner should be consulted in these cases.

The Gramm-Leach-Bliley Act (GLBA) was signed into law on November 12, 1999 and affected the frequency of CRA examinations for banks with assets less than $250 million that have either a Satisfactory or Outstanding CRA rating by placing the frequency at four and five years, respectively. Although GLBA did not address the frequency of consumer compliance examinations, the Board elected to continue to conduct consumer compliance and CRA examinations simultaneously, as designated in the following table.

SMALL BANK FREQUENCY

Acceleration of CRA Examination

According to the GLBA, a small bank may be subject to more frequent CRA examinations (i.e., sooner than 60 or 48 months) for reasonable cause. Issues that could negatively affect a bank's CRA rating that are identified during monitoring activities or other contact with a bank should be discussed with the Reserve Bank's review examiner. It is expected that a decision to accelerate the date of the next CRA examination will be rare.

Interim Monitoring

The monitoring event for small banks is to be conducted within three months of the midpoint of the examination cycle.

• The monitoring event for small banks with compliance ratings of 1 or 2 and CRA ratings of Outstanding should be conducted between 27 and 33 months from the date of the last simultaneous consumer compliance and CRA examinations.

• The monitoring event for small banks with compliance ratings of 1 or 2 and CRA ratings of Satisfactory should be conducted between 21 and 27 months from the date of the last simultaneous consumer compliance and CRA examinations.

Small banks with compliance ratings of 3, 4, or 5 or CRA ratings of Needs to Improve or Substantial Noncompliance are subject to consumer compliance examinations every 12 months. As a result, no monitoring activities at routine intervals are prescribed for these banks.

The GLBA did not affect the interval between examinations for large banks. These banks remain on a 24 month schedule as shown in the table below.

LARGE BANK FREQUENCY

Acceleration of CRA Examination

A Reserve Bank may conduct a large bank CRA examination in advance of the 24-month mandate since GLBA does not apply to banks with assets greater than $250 million.

Interim Monitoring

Interim monitoring is not required for large banks.

Determining When A Bank Becomes Subject To Large Bank Frequency

Large banks should be examined on a 24-month frequency schedule. However, if a small bank becomes large in the interval between examinations, the bank should remain on the small bank frequency schedule (i.e. 48 or 60 months, assuming a satisfactory compliance rating and a CRA rating of either Satisfactory or Outstanding). After that examination, the bank should be placed on the appropriate large bank frequency, based on the compliance and CRA ratings.

If the bank has collected one year of CRA data, the first CRA examination of a large bank should be conducted using the large bank CRA examination procedures. If, however, the bank has not yet collected CRA data for one year, the bank should be examined using the small bank CRA examination procedures.

Determining When A Large Bank Becomes Subject To Small Bank Frequency

If a large bank's assets decrease to less than $250 million during the interval between examinations, the next CRA examination (and the consumer compliance examination assuming the bank's compliance rating is 1 or 2) should be scheduled to occur either 60 or 48 months (depending on the bank's CRA rating) from the date of the last CRA examination. This change should be made immediately.

An advisory visit should be conducted as soon as practical in order to develop a preliminary assessment of the de novo state member bank's consumer compliance management program. The results of the advisory visit should be considered when planning the first examination of the start-up institution. The first consumer compliance examination should be conducted within 12 months and the first CRA examination should be conducted within 24 months of the date the institution becomes a state member bank.

Interim Monitoring

The interim monitoring event should be conducted based on the de novo bank's first CRA and compliance examination ratings according to the rules in the small bank section of this letter.

Banks that convert to Federal Reserve membership are subject to the same frequency rules as existing state member banks. The date and rating of the last consumer compliance and CRA examinations by the bank's previous regulator should be used to determine the date of the first Federal Reserve consumer compliance supervisory event. The first Federal Reserve supervisory event could be simultaneous consumer compliance and CRA examinations, a separate consumer compliance or CRA examination, or an interim monitoring event.

If the due date for the first Federal Reserve supervisory event of a bank converting to Federal Reserve membership has already passed, Reserve Banks should conduct the consumer compliance or CRA examination within 12 months of the date on which the institution becomes a state member bank.

If the previous regulator did not conduct simultaneous consumer compliance and CRA examinations the Reserve Bank should synchronize the examinations as soon as possible. The current compliance and CRA ratings and the date of the last examinations should be considered and the Reserve Bank's review examiner should be consulted when making this determination.

In the event the bank's previous regulator never conducted a consumer compliance or CRA examination, the first Federal Reserve consumer compliance and CRA examinations should be conducted within 12 months of the date on which the institution becomes a state member bank.

FBOs, which include the entity types listed below, are subject to an assessment of consumer compliance activities to determine if a consumer compliance examination is warranted.

Assessments should be conducted every 36 months for FBOs that have compliance ratings of 1 or 2, and a NED rating field of "0". Assessments should be conducted every 12 months for FBOs with compliance ratings of 3, 4, or 5. If the results of the assessment indicate that the FBO is engaging in activity to which consumer protection laws or regulations apply, a consumer compliance examination should be conducted.

Interim Monitoring

The interim monitoring event for FBOs with compliance ratings of 1 or 2 should be conducted between 15 and 21 months from the date of the last assessment. Since assessments are conducted for FBOs with compliance ratings 3, 4, or 5 every 12 months, interim monitoring activities at routine intervals are not required for these institutions.

Certain special purpose banks with assets less than $250 million are subject to an assessment of consumer compliance activities to determine if a consumer compliance examination is warranted.

Assessments should be conducted every 36 months for certain special purpose banks with assets less than $250 million that have compliance ratings of 1 or 2, and a NED rating field of "0". Assessments should be conducted every 12 months for certain special purpose banks with assets less than $250 million with compliance ratings of 3, 4, or 5. If the results of the assessment indicate that the certain special purpose bank with assets less than $250 million is engaging in activity to which consumer protection laws or regulations apply, a consumer compliance examination should be conducted.

Interim Monitoring

The interim monitoring event for certain special purpose banks with assets less than $250 million and compliance ratings of 1 or 2 should be conducted between 15 and 21 months from the date of the last assessment. Since assessments are conducted for certain special purpose banks with assets less than $250 million with compliance ratings 3, 4, or 5 every 12 months, interim monitoring activities at routine intervals are not required for these institutions.

Certain special purpose banks with assets greater than $250 million are subject to an assessment of consumer compliance activities to determine if a consumer compliance examination is warranted.

Assessments should be conducted every 24 months for certain special purpose banks with assets greater than $250 million that have compliance ratings of 1 or 2, and a NED rating field of "0". Assessments should be conducted every 12 months for certain special purpose banks with assets greater than $250 million with compliance ratings of 3, 4, or 5. If the results of the assessment indicate that the certain special purpose bank with assets greater than $250 million is engaging in activity to which consumer protection laws or regulations apply, a consumer compliance examination should be conducted.

Interim Monitoring

Interim monitoring activities at routine intervals are not required for certain special purpose banks with assets greater than $250 million.

Notes:

^1.   Small banks affiliated with a bank holding company that has assets greater than $1 billion as of December 31 of two consecutive calendar years remain on small bank examination frequency schedule even though generally examinations for these banks are conducted using the large bank CRA examination procedures.   Return to Text
^2.   New York Investment Companies otherwise known as Article XII Companies.   Return to Text
^3.   Certain special purpose banks include banker banks, as defined in 12 U.S.C. 24 (Seventh), and banks that engage only in one or more of the following activities: providing cash management controlled disbursement services or serving as correspondent banks, trust companies, or clearing agents.   Return to Text

SUBJECT: Examination and Interim Monitoring Event Frequency