The Community Reinvestment Act and Disaster Recovery

The Community Reinvestment Act (CRA), enacted in 1977, requires depository financial institutions to meet the credit needs of their communities, including low- and moderate-income neighborhoods, consistent with safe and sound banking practices. Under the regulations that implement the CRA, federal financial regulatory agencies give CRA consideration to financial institutions' activities that constitute "community development." In a round of revisions that took effect September 1, 2005, federal financial regulatory agencies expanded the definition of "community development" under the CRA to include, among other things, activities that revitalize or stabilize designated disaster areas. The questions and answers below, which are based on the Interagency Questions and Answers Regarding Community Reinvestment, are intended to provide financial institutions with general guidance about community development activities in designated disaster areas. Financial institutions that have questions about the CRA and disaster recovery should contact their federal financial regulatory agency.

What is a "designated disaster area"?

A "designated disaster area" is a major disaster area designated by the federal government. In particular, the term refers to areas included in Major Disaster Declarations administered by the Federal Emergency Management Agency (FEMA). For more on disaster declarations, see the FEMA web site, which features a searchable list of declared disasters and information on the disaster-declaration process.

What are "activities that revitalize or stabilize designated disaster areas"?

A financial institution's activity will be considered to revitalize or stabilize a designated disaster area if it helps to attract new, or retain existing, businesses or residents and is related to disaster recovery. Additionally, an activity will be presumed to revitalize or stabilize the area if the activity is consistent with a bona fide government revitalization or stabilization plan or disaster recovery plan. Examples of activities that may qualify include providing financing to help retain area businesses that employ local residents, including low- and moderate-income individuals; providing financing to attract a major new employer that will create long-term job opportunities, including for low- and moderate-income individuals; and providing financing or other assistance for essential community-wide infrastructure, community services, and rebuilding needs.

Are all financial institution activities relating to disaster recovery that revitalize or stabilize a designated disaster area considered community development activities?

Yes. However, regulators will give greater weight to activities that are most responsive to community needs, including the needs of low- or moderate-income individuals or neighborhoods.

How long can a financial institution receive consideration for these activities?

Examiners will consider revitalization or stabilization activities that take place within 36 months after the date of the disaster designation. In the event of a particularly severe and/or widespread disaster, the federal financial regulatory agencies may extend this time period in order to encourage financial institutions to assist in long-term disaster recovery efforts. For example, in October 2008, the agencies extended the disaster-activities time period by an additional 36 months for portions of the Gulf Coast that were hit by Hurricanes Katrina and Rita in 2005. For more on this, see Federal Reserve System Consumer Affairs Letter 08-9.

Can a financial institution receive consideration for disaster-recovery activities conducted outside its local community?

Yes, so long as the institution has first adequately met community development needs within its local community, or assessment area. For example, a bank that has adequately addressed community development needs in its assessment area may receive CRA consideration for donating to recovery efforts in a flooded area that lies outside the bank's assessment area but within the statewide or region-wide area that includes the assessment area. In limited and specific instances, as determined by the federal financial regulatory agencies, the geographic area has been expanded from state- or region-wide to nationwide. For more on this type of expansion, see Federal Reserve System Consumer Affairs Letter 06-5.

Other Disaster-Related Information

Articles and other materials from the Minneapolis Fed that discuss disasters and disaster recovery.

Do disasters have a silver lining?
fedgazette, September 2008
Economic Myth Busters

2005 revisions define new CRA-eligible geographic areas
Community Dividend, March 2007
An analysis of recent changes to the Community Reinvestment Act (CRA) reveals that the CRA landscape in the Ninth Federal Reserve District has changed greatly, and investments routinely made in large portions of the region may now count as CRA-qualified activities under the revised regulation.

Flaws in the Ointment
The Region, December 2006
Disaster insurance markets are distorted, economists argue, and could be improved.

Disaster Zone
The Region, December 2006
Why conventional insurance alone isn’t the best way to cope with the next catastrophe.

Disaster recovery for low-income people: Lessons from the Grand Forks flood
Community Dividend, September 2006
In examining actions taken and outcomes realized, the tale of the Grand Forks flood provides lessons about ensuring the long-term well-being of low-income people in the event of a disaster.

High and dry
fedgazette, September 2006
Almost a decade after the Flood of 1997, the Grand Forks metro area has made quite a comeback.

To save a city
fedgazette, September 2006
How far should government power extend into private markets in the wake of a disaster?

Selected state and federal flood-recovery expenditures
fedgazette, September 2006

After disaster: Salvage or savage logging?
fedgazette, July 2002
Opposing views on the value of timber harvests after natural disasters

Two Forest Natural Disasters
fedgazette, July 2002
Table comparing: Superior National Forest Blowdown, July 1999 and the Bitterroot National Forest Fires, Summer 2002

Fighting the last war
fedgazette, November 2001
Current policy neglects to anticipate the impact of floodplain development on future flood potential.

Back to nature
fedgazette, November 2001
Restoring wetlands may help to control floods, but their other values complicate the picture.

After the flood
fedgazette, November 2001
Flood insurance and wetlands restoration are two policies that hold both promise and problems for flood control. Will they be able to handle the next disaster?

The failure of flood control
fedgazette, September 2001
Billions of taxpayer dollars have been spent on flood management and disaster relief, but flood disasters continue and costs keep climbing.

Subsidizing sorrow
fedgazette, September 2001
We call them acts of God, but the flood disasters of the past decade were caused, in part, by poor policy. Have we learned our lessons or are we making floods still worse?

Out of harm’s way
fedgazette, September 2001
The new wave in flood control is getting rid of the problem: Us.

Dam it all
fedgazette, September 2001
Dams and levees are the usual answer to flooding, but they’re not always the right answer. So why do we keep building them?

The Forks continue flood recovery plans
fedgazette, July 1998
More than a year after floods devastated Grand Forks, N.D., and its Minnesota cousin, East Grand Forks, the recovery is beginning to take shape.

Flood insurance helps manage risk of financial loss
Community Dividend, December 1997
Answers to questions about the National Flood Insurance Reform Act of 1994’s technical requirements.

Toil, hope, frustration mark Grand Forks recovery
fedgazette, July 1997

Ninth District banks and the 1997 flood
fedgazette, July 1997

Receding flood waters reveal huge damage assessment
fedgazette, April 1997
Total bill will exceed $1 billion; infrastructure costs will hang on for years.

Is topography destiny?
fedgazette, April 1997