The Community Reinvestment Act (CRA) encourages lenders to meet the credit needs within the communities they serve, including those designated as low- and moderate-income. Larger banks often use innovative strategies to meet community needs under the definition of community development. Because such efforts can be time-consuming and complex, CRA officers must be able to interpret how the act may apply to countless everyday banking scenarios.
This is one of a six-part quiz series designed to test your knowledge of the CRA. Our series aims to simplify some of the complexities inherent in this nearly 50-year-old law.
Scenario
A large, majority-owned bank sells a loan participation in a commercial loan, which was originated in its assessment area, to a minority-owned depository institution (MDI). The purpose of the loan participation is to enable the MDI to book sound assets and increase earnings more quickly than it otherwise could. The MDI is not located within the subject bank’s Assessment Area (AA) or broader statewide or regional area. The institution also has a greater need for earning assets, which have proven more difficult to procure than deposits.
