If you’ve been following the ongoing saga of Community Reinvestment Act (CRA) reform, you have likely already read the latest proposal. Our read is that it is a genuine step toward relief for smaller institutions. It’s been more than a year since the Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), and Federal Reserve Bank (FRB) jointly proposed to rescind the complicated and contested 2023 Final Rule, and the latest proposal, debuted in a press release on July 31, 2026 and published in the Federal Register on August 12, is the next official glimpse into the future of the CRA. As one of the goals of reform has always been consistency, and the Federal Reserve did not join the FDIC and OCC in this issuance, it’s best to consider this the first glimpse of the next iteration. All of the regulators (including the Federal Reserve) will be carefully monitoring stakeholder reaction as they move forward.
Although it is important to understand this proposal and its potential impact on your institution, the final rule could take years to come to fruition and may differ greatly from this initial proposal. The comment period is open until October 13, 2026, and we strongly suggest providing comments on any of the provisions affecting your bank and/or answers to some or all of the 62 questions throughout the document seeking stakeholder input. If you are a state member bank waiting for the Federal Reserve Board to issue their version, we suggest you review this proposal carefully and provide your comments alongside those banks directly affected by the proposal.
Overall, this proposal is beneficial to banks, especially those in the intermediate and small categories. Large banks would have some additional reporting responsibilities, and community development language would change, but the methodology for assessment would remain virtually the same. However, many changes and clarifications would impact banks in varying degrees, so it is very important to understand how the changes would affect your bank’s CRA program.
The stated goals of the proposal according to the agencies are:
1) Increase Focus on Lending,
2) Ensure that community development grants benefit communities,
3) Reduce burden,
4) Increase clarity and objectivity.
The following is a brief summary of the changes from the regulation in effect right now. They are listed roughly in order of impact, as the asset thresholds will affect all institutions subject to the CRA, while the other changes may not affect all banks.
Asset Size Thresholds
The proposed thresholds are based on the 1995 alignment of the percentage of banks and percentage of assets in the small and large categories. These thresholds have already provoked adverse comment from community advocacy groups like the NCRC, so we would not be surprised if the final version of this proposal lowers the asset sizes to somewhere between the current thresholds and this proposal. In fact, the agencies included lower alternatives in the proposal, indicating a willingness to concede some ground to community groups. Of course, the American Bankers Association (ABA) and Independent Community Bankers Association (ICBA) support the threshold adjustments, and institutions that support them should say so on the record before the comment period closes.
Small Bank
The small bank threshold (effectively at $412 million right now) would increase significantly to $1 billion, adjusted annually for inflation.[1] However, regulators have proposed an alternative-the SBA definition of small commercial banks, which currently stands at $850 million.
What does this mean? Most current intermediate small banks (current threshold $1.649 billion) would become small banks and no longer required to perform community development activities. According to the proposal these banks would continue to receive credit for these activities under the performance context element, although it is unclear how this would work. If your bank would be in this category, we suggest you continue to perform community development activities, as:
- This proposal is only the first version;
- In any event your bank will continue to be evaluated as intermediate small for at least one evaluation cycle, and possibly more, and
- Your bank will continue to benefit from engaging in this activity, in the eyes of both regulators and the public.
Intermediate Bank (formerly Intermediate Small Bank)
The proposed asset size for Intermediate Banks is between $1 billion and $10 billion.1 However, the agencies are also considering an alternative intermediate bank asset threshold cap of $3.252 billion.
Many banks now evaluated using the large bank methodology of Lending, Investment, and Service Tests would be subject to the intermediate methodology of the Lending and Community Development Tests. In other words, these banks would still be required to perform community development activity, but the methodology would revert to that forIntermediate Banks.
Banks in this category would no longer be required to report small business/small farm data or any other information. However, we suggest that any banks currently reporting data continue to collect it, as this will be useful for the bank’s internal performance monitoring as well as during preparation for examinations.
Large Bank
Finally, the large bank threshold would be set at over $10 billion1 in assets (or alternatively as above, $3.252 billion). These banks would continue to be evaluated using the Lending, Investment, and Service tests, but would be required to report information on community development activities in addition to the current small business/small farm lending. The agencies have stated that they still propose to utilize Section 1071 Small Business data when it becomes available.
Retail Lending
Retail lending, including loans reported under the Home Mortgage Disclosure Act (HMDA), small business and small farm loans reported under the CRA, and consumer loans, would be evaluated using the current methodology. The change proposed is to officially designate major product lines to evaluate under the Lending Test. The agencies propose two options; one would designate product lines over the entire institution for all assessment areas, and the other by individual assessment area. If your bank’s product lines vary depending on the assessment area, the designation by individual assessment area would result in a more complicated review process for your bank.
The regulators have proposed a threshold of 30 loans for a product line to be considered “major”. This seems to codify a practice currently used by many regulators in which a loan type with less than a certain number of originations may not, at examiner discretion, be evaluated in a particular assessment area.
Community Development
After the asset size increases, community development is the area with the most impactful changes. These changes involve tweaks to certain definitions, and although on the surface it may look like banks can expect more community development credit, in some cases, fewer activities may qualify. See below for impact to naturally occurring affordable housing, community development grants, and retail deposit services. It is important to review the changes for their possible effect on your institution and take advantage of the comment period to voice your concerns and/or propose alternatives.
The agencies propose to establish an illustrative list of community development activities and a process by which banks may submit activities for consideration. This should continue to be a very popular provision among all stakeholders.
Additional loans could be eligible for community development consideration as any loan not evaluated in a major product line could be considered. The proposal would also give credit for loans originated in prior periods and unfunded commitments. Community development investments would also include unfunded commitments.
Community development grants would be split from qualified investments to create a new activity type-community development grants. However, banks must demonstrate that grants are directly used by the recipient for a community development purpose. In fact, for large banks, the definition of grant would “require that the grant or donation be directed to a recipient whose indirect costs for administering the grant or donation would not exceed 15%”. This seems to be an attempt to codify a practice that some regulators currently use to determine the amount that actually benefits the charity’s recipients. If your bank relies heavily on grants and donations, this change would create the need for additional due diligence and record-keeping and may result in fewer grants receiving credit.
The proposal would change the definitions of qualitative factors. “Responsiveness” would include innovativeness, flexibility, complexity, and impact, and all qualitative factors would apply to all banks. The proposed definition of “complex” would narrow its scope.
Community Development Purpose Definitions
If your bank relies heavily on naturally occurring Affordable Housing (briefly, not associated with a government plan or program), changes to applicable criteria could affect the number of loans receiving credit. The proposal would codify the use of the 30% of 80% of median family income affordable standard, which is stricter than others currently in use.
Changes to the Economic Development definition should help more activities qualify as community development. The three categories of financing[2] remain and are clarified, but the purpose test, under which a loan or activity must add or retain low- or moderate-income jobs or jobs in a low- or moderate-income area, would be eliminated.
The Revitalize and Stabilize definition would be expanded by the addition of the consideration of certain elements to all target areas that are currently restricted to certain specific target areas. The proposal also specifically recognizes activities in Indian country and areas targeted by for redevelopment that qualify for significant economic incentives, such as tax credits, tax abatements, or grants.
What about credit for community development activities outside the assessment area? The agencies intend to continue to give credit for these activities but propose changes to the methodology. If your bank relies on activity outside your assessment areas, this discussion will be important to you.
Retail Services Under the Service Test
In order to focus on lending, retail services under the service test would be restricted to credit services, although the rest of the test would remain the same.
Strategic Plan
If your institution has ever considered the Strategic Plan option, be aware that the agencies recognize that this option is underused. The proposal contains a number of changes to the requirements and the process that should make this methodology a more viable option. If this is your bank, please read carefully and submit your comments on the Strategic Plan proposal.
Public File
In a final proposal that will affect everyone, banks would no longer be required to keep paper copies of their Public File at branches but instead post them on their websites.
If you have questions about this proposal, or concerns about your bank’s CRA performance under the current regulation, our team at Arcsalus Advisors can help — with comment letter development, program reviews and self-assessments, threshold and methodology impact analysis, examination preparation, and board and staff training.
[1] Asset size will continue to be calculated based on a bank’s assets included in Call Report data as of December 31 of a calendar year, for two consecutive calendar years, with the bank belonging to the lower asset size category that applied during either of these two calendar years.
[2] Financing for businesses or farms with gross annual revenues $1 million or less or under the SBA size standard for their type of business, with funds expanding or improving presence regarding productive capacity, physical presence, or employment bases, but excluding enhancement of operating liquidity; funds used for technical assistance to these types of businesses; and support of businesses involved in federal, state, or local economic development programs.