Last week, federal banking regulators gave CIT Group permission to acquire OneWest Bank — thereby approving the first bank merger to create a systemically important financial institution. But their approval was contingent upon a set of conditions that suggest the government is placing a renewed focus on the Community Reinvestment Act.
Regulators imposed a historic level of conditions on the merger in recognition of the tens of thousands who opposed the merger, citing concerns about the banks' fair lending practices and record of serving low-income communities. The Livingston, N.J.-based CIT must submit a revised CRA plan and a comprehensive business plan. These requirements show that the bank's regulator, the Office of the Comptroller of the Currency, is committed to ensuring the combined institution will serve the needs of the communities impacted by the acquisition.
But this isn't a done deal. The conditional approval rests on whether the banks will solicit further community input, create an updated CRA plan and submit it to the OCC within 90 days for its approval. CIT Bank now has the opportunity to hit the reset button on CRA and engage in a robust and inclusive process with the community.
Recent examples show that strong CRA plans, and the input used to develop them, serve to rebuild trust between banks and communities as well as provide a road map for the bank's reinvestment planning. The OCC also made its recent approval of Valley National's acquisition of 1st National Bank conditional upon the bank developing a CRA plan. After a months-long process of working with community groups that initially opposed the merger, the final result was a robust CRA plan. Last year, Banc of California worked with the California Reinvestment Coalition to create a five-year CRA plan with clear benchmarks and goals for activities like small-business lending, community investments and philanthropy. And while the proposed merger of City National and RBC hasn't been approved, City National has created a five-year plan that calls for $11 billion in reportable CRA activity and is supported by community groups.
As bank merger activity has increased, we have seen regulators and lawmakers emphasize their commitment to improving the implementation of the CRA. Federal Reserve chair Janet Yellen recently said that she is concerned regulators are letting too many poor communities go unserved by banks. Sen. Elizabeth Warren and Rep. Elijah Cummings requested that the Government Accountability Office evaluate the CRA to see how its implementation could be improved.
It is up to the OCC, the Federal Reserve, and the leadership of the banks to now act on these words. In that way, banks and communities will see benefits from the CIT-OneWest merger.
Getting there will also require banking regulators to remain vigilant even after the merger has been approved. As far as California's communities are concerned, the deal is not yet done. Regulators have one more ace in their pocket. Until the banks have a strong CRA plan in place, the deal is not done and should not be given a stamp of approval by regulators.