What Is Regulation BB?

Regulation BB is a Federal Reserve regulation that implements the 1977 Community Reinvestment Act. It sets standards to encourage bank lending to borrowers in low- and moderate-income communities and requires banks to provide certain information to the public. Regulation BB mandates that banks must disclose to the public which communities they will serve and the type of credit that they are willing to extend there. It also requires them to publish any comments they have about their Community Reinvestment Act (CRA) statement to the public.

Key Takeaways

  • Regulation BB lays out the Federal Reserve's implementation of the Community Reinvestment Act (CRA).
  • The CRA is a federal law that directs regulators to encourage lenders to supply credit and banking services to all segments of the communities they serve, including low- and moderate-income areas.
  • Regulation BB lays out the performance standards, consequences for poor evaluations, and information collection and disclosures that lenders are held to

Understanding Regulation BB

Regulation BB is part of the implementation of the CRA. This act encourages banks and lending institutions to extend credit to all segments of society, including the less creditworthy. Regulation BB, therefore, requires these entities to make public statements regarding their policies on this matter. Regulation BB further authorizes regulatory authorities to assess how effectively financial institutions have met the credit needs of all segments of the communities they serve, including low- and moderate-income neighborhoods. Financial institutions are expected to meet the needs of all segments of their communities in a manner consistent with sound operating decisions.

The CRA was passed in 1977 to address discriminatory lending practices that operated to the detriment of lower- and moderate-income neighborhoods. This discriminatory practice was known as redlining and involved the denial of credit services to residents of specific neighborhoods, which areas were denoted on Home Owners' Loan Corporation residential security maps by the color red.

Regulation BB sets performance standards, tests, and ratings for lenders based on the loans they have made to borrowers of different income segments. Based on these standards, regulators can use the a lender's performance as evidence of discriminatory lending practices, which can negatively impact bank regulator's overall evaluation of a lender's performance and can delay or block required regulatory approvals or applications that a lender needs.

Lender performance standards are based on a bank's lending, investment, and delivery of banking and community development services to the communities that they serve. From these three criteria, regulators assign each lender a rating on a four point scale to evaluate performance in serving all segments of their communities as required by the CRA.

Alternative community development performance standards and tests are laid out for wholesale and limited purpose banks, which do not offer general retail lending or only deal in specialized types of credit such as auto loans. Streamlined standards are available to evaluate small banks whose volume of business might make compliance difficult to determine.

The regulation also sets collection, disclosure, record keeping requirements in order to track banks' compliance with the performance standards for community lending. Regulation BB requires banks to collect data on small business, small farm, community development, and home mortgage lending in the communities that they serve. It also permits, but does not require, banks to collect similar data on consumer lending. Banks are required to make some of this information, along with records of any relevant written comments or complaints they have received available to the public.