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We are considering originating a $6 million loan that meets the definition of a community development loan. If we sell $3 million of the loan to another bank as a participation, can we count the entire $6 million loan as a community development loan for Community Reinvestment Act (CRA) purposes? We are an intermediate small bank. – IBA Compliance Connection

IBA Compliance Connection

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We are considering originating a $6 million loan that meets the definition of a community development loan. If we sell $3 million of the loan to another bank as a participation, can we count the entire $6 million loan as a community development loan for Community Reinvestment Act (CRA) purposes? We are an intermediate small bank.

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No, the lead lender on a community development loan should report only the lender’s current interest in the loan for CRA purposes, without including any portions of the loan that have been sold to other institutions.

The CRA regulations require banks to report the “aggregate number and aggregate amount” of its community development loans. Based on a conversation with a CRA expert at the Federal Reserve Bank of Chicago, this means that the lead lender may report only its own portion of a community development loan — not the entire loan amount at origination. Similarly, the other loan participants would report only their portions of the loan for CRA purposes.

For resources related to our guidance, please see:

  • FRB CRA Regulations, 12 CFR 228.42(b)(2) (“A bank . . . shall report annually by March 1 to the Board in machine readable form (as prescribed by the Board) the following data for the prior calendar year: . . . (2) Community development loan data. The aggregate number and aggregate amount of community development loans originated or purchased; . . .”)
  • Interagency Q&As Regarding the Community Reinvestment Act (July 25, 2016), Loan Information Required to be Reported, Question #4 (“Question: When an institution purchases a participation in a community development loan, which amount should the institution report — he entire amount of the credit originated by the lead lender or the amount of the participation purchased? Answer: The institution reports only the amount of the participation purchased as a community development loan. . . .”)