Board members at banks today are increasingly focused on risk, culture, and reputation as they seek to navigate fast-changing market and regulatory conditions. While these seem like expansive themes, much of the mandate for strengthening corporate culture and ensuring strong risk and reputation management can be understood and achieved through the lens of corporate compliance.
Compliance with expansive rules can often serve as leading indicators of enterprise compliance and risk management frameworks’ robustness and strength. A great such example is the Community Reinvestment Act (CRA) – a set of rules ensuring fair access to credit for low and moderate-income communities in commercial, consumer, and mortgage banking.
An institution’s CRA compliance can double as a useful framework for broader board-level understandings around organizational risk management because of CRA’s breadth and granular reach into the workflows and processes behind commercial, consumer, and mortgage lending - three of the most critical asset classes for a typical bank.
Why CRA compliance is an essential board priority
Of all the financial services regulations that impact retail banking operations, the CRA is arguably the most expansive set of rules.
Community Reinvestment Act (CRA) rules introduce several complex legal elements for banking institutions. One of the most challenging is the requirement for banks to demonstrate that they are meeting the credit needs of their entire community, including low- and moderate-income (LMI) neighborhoods, while maintaining safe and sound banking practices. This mandate lacks some prescriptive detail, leaving significant room for examination discretion.
Banks are also assessed on qualitative factors, such as their responsiveness to community needs, which can be subjective and may create uncertainty about how performance will be rated. Additionally, banks must navigate the regulatory expectation that their lending practices align with anti-discrimination laws like the Fair Housing Act and Equal Credit Opportunity Act, creating highly detailed data collection and documentation efforts.
Another complex element is the geographic focus of CRA compliance. Banks are required to define "assessment areas" based on where they maintained deposit-taking facilities, which sometimes limited their ability to address community needs outside these areas and poses evaluation challenges as banking activities increasingly expand beyond physical branches.
As a results, banks must maintain robust data sets, procedures, and workflows that support CRA compliant lending operations. Every step in the banking journey, every transaction, and every approval decision must reflect an ongoing effort to ensure fair access to credit.
Given that the CRA covers most lending areas for a typical retail bank, boards must save a valued seat at the table for chief compliance officers (CCOs). The scope of regulations underscore the need for CRA to be a clearly understood organizational priority from the Board of Directors on down. The impacts are compliance with CRA are truly material to financial performance and enterprise scale.
For example, CRA evaluations are tied to applications for mergers, acquisitions, or new branches, meaning a poor CRA rating could block business growth opportunities. The entrenched nature of the rules means they will likely remain a fact of life well into the future. The good news is that, with the help of the right technology platform, CCOs can help board members navigate the complexities of CRA rules, ensuring that banks comply and strategically align their efforts with existing standards.
Building the right technology strategy
CRA regulations are both tremendously important and massively complex, posing a fundamental challenge that robust technology can help solve. CRA compliance is crucial enough that board members must understand its value and implications, yet complex enough that banks need advanced technology to adequately map, analyze, and adjust the processes and workflows that determine how the organization is and isn’t complying.
Bridging these worlds requires a technology platform with the power to ensure CRA compliance while also distilling the high-level takeaways and actionable insights for board-level understanding and decision support. With hundreds of data points – from lending patterns to acceptance and rejection rates – the right technology platform will help risk officers identify meaningful patterns and dynamics, cutting through the noise to reveal the organization’s risk profile and compliance posture.
Advanced platforms can then translate complex compliance data into insights that board-level members, who may not be familiar with the technical aspects, can understand, appreciate, and act upon. By bridging the gap between granular data analysis and strategic decision-making, the right technology platform not only streamlines compliance efforts but also helps communicate its risk profile at the highest levels of the organization.
Mastering CRA compliance and board-level insights with the right technology platform
Despite expected deregulation initiatives by today’s Federal executive branch regulators, the Community Reinvestment Act remains a firmly entrenched set of rules for lending equity that is in no danger of going away anytime soon. Bank board members must respect CRA as a top compliance priority while leveraging it as a lens into risk and reputation management for the whole organization.
These dual objectives can only be achieved with a proactive technology strategy and a powerful IT platform capable of ensuring compliance and automating reporting at the business scale. Our industry-leading resources include CRA Wiz®, a comprehensive compliance solution that automates preparation, analysis, and reporting processes and comes in a cloud-based SaaS version. In addition, our advisory consulting services can help with CRA plan development, exam preparation, performance assessments and data management assistance, all of which ensure that institutions meet CRA performance expectations and earn CRA credit.
Learn more about how Wolters Kluwer can help you master mastering CRA compliance and board-level insights.
