oversight

Federal Reserve Board: Merger Process Needs Guidelines for Community Reinvestment Issues

Published by the Government Accountability Office on 1999-09-24.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Report to the Honorable Maxine Waters
                 and the Honorable Bernard Sanders,
                 House of Representatives


September 1999
                 FEDERAL RESERVE
                 BOARD
                 Merger Process Needs
                 Guidelines for
                 Community
                 Reinvestment Issues




GAO/GGD-99-180
United States General Accounting Office                                                             General Government Division
Washington, D.C. 20548




                                    B-280468
                                    September 24, 1999

                                    The Honorable Maxine Waters
                                    The Honorable Bernard Sanders
                                    House of Representatives
                                                                                                                                    1
                                    As you requested, this report discusses large bank holding company
                                    (BHC) mergers and the impact of such mergers on lending in low- and
                                                                   2
                                    moderate-income (LMI) areas. In reviewing BHC merger applications, the
                                    Federal Reserve Board (FRB) has a statutory responsibility, established by
                                    the Bank Holding Company Act of 1956 (BHC Act) and the Community
                                    Reinvestment Act of 1977 (CRA), to take into account an institution’s
                                    record of community credit performance when evaluating the application.
                                    In addition, the BHC Act requires that FRB take into account the
                                    convenience and needs of the community to be served when reviewing
                                    BHC merger applications.

                                    As agreed with your offices, our objectives were to analyze (1) FRB’s legal
                                    responsibilities in assessing BHC mergers for CRA performance; (2) FRB’s
                                    process for assessing the CRA performance of six large BHC merger
                                    applicants, including how FRB addressed the principal public concerns
                                    related to the CRA performance; and (3) the premerger and postmerger
                                    mortgage lending in LMI and minority communities for three large BHC
                                    mergers. To meet the first two objectives, we focused on six of the largest
                                                                          3
                                    bank mergers in the period of 1995-98.




                                    1
                                     A bank holding company consists of a parent company with one or more subsidiaries that may
                                    include banks, thrifts, and other entities providing services that the regulators consider closely related
                                    to banking.
                                    2
                                     You also asked us to discuss the impact of large bank mergers and enforcement of the Fair Housing
                                    Act and the Equal Credit Opportunity Act (collectively, the fair lending laws). We are conducting a
                                    separate assignment and issuing another report to address these issues.
                                    3
                                     The six large BHC mergers we reviewed were (1) NBD Bancorp, Inc.’s acquisition of First Chicago
                                    Corporation in 1995; (2) Fleet Financial Group’s acquisition of Shawmut National Corporation in 1995;
                                    (3) Chemical Banking Corporation’s acquisition of Chase Manhattan Corporation in 1996; (4)
                                    NationsBank Corporation’s acquisition of Boatmen’s Bancshares, Inc. in 1997; (5) NationsBank
                                    Corporation’s acquisition of BankAmerica Corporation in 1998; and (6) Bank One Corporation’s
                                    acquisition of NBD First Chicago Corporation in 1998.




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                   In acting on a bank holding company merger application, FRB must
Results in Brief   consider the convenience and needs of the community to be served under
                   the BHC Act and take into account the record of the relevant depository
                   institutions under CRA. Neither the BHC Act nor CRA, or their legislative
                   histories, provide guidance on how FRB is to take these factors into
                   account when considering a BHC merger application. The depository
                   institutions’ primary federal regulators have developed guidance for their
                   assessments of a depository institution’s CRA performance. However,
                   FRB has not developed guidance on how it evaluates the CRA records,
                   including the performance ratings and public comments comprising that
                   record, of the merging BHCs.

                   For the six BHC merger applications that we reviewed, FRB attempted to
                   balance the regulators’ ratings of the depository institutions’ CRA
                   performance and information presented through public comments that
                   raised concerns with the institutions’ CRA records. All of the bank
                   subsidiaries included in the six mergers had satisfactory or outstanding
                   performance ratings in their most recent CRA examinations. The principal
                   CRA concerns raised by commenters included insufficient home mortgage
                   lending, insufficient small business lending, and branch closures in LMI
                   areas. FRB analyzed Home Mortgage Disclosure Act of 1975 (HMDA) and
                   small business data to address concerns of insufficient home mortgage and
                   small business lending, respectively. FRB’s consideration of branch
                   closures was generally limited to a determination of whether the applicant
                   had an adequate branch closure policy and its past branch closure record.
                   FRB approved all six mergers, but four of the mergers were approved with
                   conditions for the reporting of subsequent branch closures. FRB’s lack of
                   written guidance on how it addresses public comments raising CRA
                   concerns contributed to the concerns voiced by community groups and the
                   BHC applicants regarding the lack of transparency in the merger
                   application process. In this report, we recommend that FRB address this
                   lack of transparency.

                   On the basis of our analysis of home mortgage lending, BHC merger
                   activity had not been associated with adverse changes in single-family
                   home mortgage lending in minority and LMI areas in the major
                   metropolitan areas served by the acquired BHCs for the three BHC
                   mergers we analyzed. NBD’s acquisition of First Chicago and Chemical’s
                   acquisition of Chase Manhattan have been associated with stable to
                   increased lending in the relevant areas. Fleet’s acquisition of Shawmut has
                   been associated with a decline in Fleet’s market share in the relevant areas
                   that mirrored its decline in overall market share in the Boston
                   metropolitan statistical area.



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             Under the BHC Act, a bank holding company must obtain FRB’s approval
Background   before merging with or acquiring another bank holding company. In
             reviewing an application filed by a bank holding company, FRB is required
             to consider several factors, including the financial and managerial
             resources of the applicant, the future prospects of both the applicant and
             the bank holding company that is to be acquired, the competitive effects of
             the merger, and the convenience and needs of the community to be served.
             Even before CRA was enacted, FRB’s regulations called for public
             comments in connection with the merger applications pursuant to the BHC
             Act obligation of FRB to ensure that the merger would meet the
             convenience and needs of the local community. The Board of Governors
             has the authority to delegate its application authority to the Reserve Banks
             if the application fits certain criteria. However, an application may raise
             several issues that might require Board Action under such factors as the
             financial, managerial, and convenience and needs of the community,
             including the CRA performance of the applicant.

             FRB approved the six BHC mergers in our study. With the exception of
             NBD’s acquisition of First Chicago and Bank One’s acquisition of NBD
                                                       4
             First Chicago, the lead bank subsidiaries also took actions to merge their
             operations. Bank subsidiaries are also required to receive approval from
             their primary regulators for such combinations. For three BHC mergers,
             the lead bank subsidiaries of the merging BHCs submitted their
             applications to their primary regulators after FRB approved their BHC
             applications.

             CRA requires all federal bank and thrift regulators—FRB, the Office of the
             Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS),
             and the Federal Deposit Insurance Corporation (FDIC)—to encourage
             depository institutions under their jurisdiction to help meet the credit
             needs in all areas of the community that the institution is chartered to
             serve, consistent with safe and sound operations. CRA requires that the
             appropriate federal supervisory authority (1) assess the institution’s record
             of meeting the credit needs of its entire community, including LMI areas,
             and (2) take that record into account in its evaluation of bank expansion
             applications. Such applications include those to establish or relocate a
             branch or home office and applications for mergers, consolidations, or the
             purchase of assets or assumption of liabilities of a regulated financial
             institution. Assessment areas, also called delineated areas, represent the

             4
              In this report, we refer to banks and thrifts that are subsidiaries of BHCs as bank subsidiaries. Lead
             bank subsidiary means the largest insured depository institution controlled by the bank holding
             company at any time.




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communities for which the regulators are to assess an institution’s record
of CRA performance. CRA also requires the regulators to periodically
assess an institution’s community lending performance during
examinations. Only insured banks and thrifts are subject to the provisions
of CRA. On the basis of the findings of the examination, depository
institutions are assigned a rating—that is, outstanding, satisfactory, needs
to improve, or substantial noncompliance. Nonbank financial institutions,
                                                                   5
such as mortgage companies, are not subject to CRA provisions.

Unlike certain other banking laws, CRA does not provide regulators with
the authority to take enforcement action on the basis of findings of
noncompliance resulting from the examination process. The CRA
application evaluation process is the exclusive mechanism for enforcing
the statute. Regulations proposed in 1993 and 1994 by the regulators
included a new set of sanctions to enforce CRA. According to the
proposed regulations, a poor CRA rating would have been considered a
violation of a bank’s affirmative obligation to meet the credit needs of its
entire community. A bank that received a CRA rating of substantial
noncompliance would have been subject to enforcement actions
                                                  6
authorized by the Federal Deposit Insurance Act. In a letter to OCC dated
December 15, 1994, the Department of Justice (Justice) concluded that the
agencies lack legal authority to use cease and desist orders and civil
money penalties to combat noncompliance with CRA. The final
regulations did not contain the enforcement provisions, but, consistent
with the statute, did require that the CRA record be taken into account in
the application process.

Since the initial enactment of CRA, the regulations that implement the act
                      7
have been amended. In 1993, the Clinton Administration instructed the
federal bank regulators to revise the CRA regulations by moving from a
process- and paperwork-based system to a performance-based system
focusing on results, especially the results in LMI areas of an institution’s
communities. Based on these instructions, the federal banking agencies
replaced the qualitative CRA examination system with a more quantitative
system that is based on actual performance. For large retail institutions,
CRA performance is measured through the use of three tests as follows.

5
 In this report, we refer to BHC subsidiaries that are not insured depository institutions, such as
mortgage companies, as nonbank subsidiaries.
6
 Section 8 of the Federal Deposit Insurance Act provides enforcement mechanisms to the regulators
for violations of banking law. Among the mechanisms are cease and desist orders and civil money
penalties.
7
    FRB implemented CRA with its Regulation BB.




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• The lending test entails a review of an institution’s lending record,
  including originations and purchases of home mortgage, small business,
  small farm, and, at the institution’s option, consumer loans throughout the
  institution’s service area, including the LMI areas. The lending test is
  weighted more heavily than the investment and service tests in the
  institution’s overall CRA rating.
• The investment test evaluates an institution’s investment in community
  development activities.
• The service test requires the examiner to analyze an institution’s system
  for delivering retail banking services and the extent and innovativeness of
  its community development services.

  In May 1995, the bank regulators issued the new CRA regulations (the
                                        8
  performance-based CRA regulations). For large institutions, the
  performance-based CRA regulations became effective on July 1, 1997.
  Therefore, CRA ratings that FRB relied upon in the six merger applications
  we considered were mostly from the previous process- and paperwork-
  based system.

  Most of the bank subsidiaries of the BHCs we reviewed were national
  banks regulated by OCC. The exception was Chemical Bank, which is a
  state-chartered bank regulated by FRB and the New York State Banking
  Supervisor.

  HMDA was enacted to provide regulators and the public with information
  on home mortgage lending so that both could determine whether
                                                                   9
  institutions were serving the credit needs of their communities. HMDA
  was amended in 1989 to include the collection of data on the race, sex, and
  income of applicants and the action taken on the application. Home
  mortgage lenders that are required to report are to submit HMDA data files
  for each loan application. HMDA reporting requirements first only applied
  to banks and their subsidiaries. Over the years, Congress has expanded
  HMDA’s coverage to include mortgage banking subsidiaries of bank
  holding companies and independent mortgage companies that have assets
  above a certain level and a home or branch office in a metropolitan
  statistical area (MSA). For data collection in 1998, depository institutions
  with an office in an MSA are covered if they had more than $29 million in
  assets as of December 31, 1997. Nondepository lenders are covered if they
  were located in or made loans in metropolitan areas and had assets of
  8
   A previous report, Community Reinvestment Act: Challenges Remain to Successfully Implement CRA,
  (GAO/GGD-96-23, Nov. 28, 1995), analyzed CRA and its implementing regulations.
  9
      FRB implemented HMDA with its Regulation C.




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              more than $10 million or if they originated 100 or more home purchase
              loans in the preceding year.

              FRB’s Regulation BB describes the data that depository institutions are
              required to collect and maintain for CRA purposes. Under revisions of
              Regulation BB, depository institutions defined as “large” were required,
              beginning in 1996, to collect and report data annually on the number and
              dollar amount of their originations and purchases of small loans to
              businesses and farms and on any community development loans. Only
              independent institutions with total assets of $250 million or more and
              institutions of any size if owned by a holding company that has assets of $1
              billion or more are subject to the data reporting requirements. The Federal
              Financial Institutions Examination Council (FFIEC) made the CRA data on
                                                                                   10
              1996 small business lending available to the public in October 1997. The
              data on business and farm lending reported under the CRA regulations are
              more limited in scope than data reported on home mortgage lending under
              HMDA. In particular, the CRA data include information only on loans
              originated or purchased, not on applications that are turned down or
              withdrawn by the customer. Also, unlike HMDA data, the CRA data do not
              include the income, sex, or racial or ethnic background of applicants.
              Finally, again unlike HMDA data, the CRA data are not reported and
              disclosed application by application; rather, the data are aggregated into
              three loan-size categories and then reported at the census tract level.

              To determine FRB’s legal responsibilities for assessing CRA performance,
Scope and     we reviewed the BHC Act and CRA, their legislative histories, regulations
Methodology   promulgated under each act, and related published materials.

              To assess FRB’s process for reviewing BHC merger applications for CRA
              performance, we used a case study approach. We selected, on the basis of
              the assets of the acquired BHC, the two largest BHC mergers in 1995, the
              single largest BHC merger in 1996 and again in 1997, and the two largest
                                    11
              BHC mergers in 1998. We reviewed the CRA public evaluation reports of
              the lead bank subsidiaries of the BHCs included in our case studies,
              internal FRB memorandums and analyses conducted in conjunction with
              the six merger applications, orders publicly issued by the Board of
              Governors containing approval of each merger, public comment letters,

              10
                 The member agencies of FFIEC include OCC, FDIC, OTS, FRB, and the National Credit Union
              Administration. For HMDA–related matters, the Department of Housing and Urban Development also
              participates in FFIEC deliberations.
              11
               In this report, we refer to the applicant as the BHC that acquired the target BHC. We refer to the
              consummation of the transaction as the merger.




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and FRB summaries of concerns raised in public comment letters. The
scope of our reported findings on how FRB addressed the principal public
concerns was limited by the confidentiality of particular FRB analyses and
conclusions.

FRB’s process for the six mergers in our study cannot be generalized to all
large BHC mergers because of the small sample size (i.e., six mergers) and
the judgment involved in selecting the sample.

We focused on FRB’s BHC merger application process in reviewing the six
mergers. We did not assess the quality of previous CRA examinations
conducted by primary banking regulators or the accuracy of public
comments. We also did not verify the accuracy of data and other inputs
relied upon by FRB in its review of the six merger applications.

To address the third objective on premerger and postmerger home
mortgage lending for three of the six mergers completed in 1995 and 1996,
we obtained and analyzed HMDA data. We did not verify the accuracy of
the HMDA data.

In addressing our three objectives, we interviewed officials from FRB, the
Federal Reserve Bank of New York, OCC, the Office of New York State’s
Supervisor of Banking, the BHCs included in our case studies, the
American Bankers’ Association, the Consumer Bankers’ Association, and a
selected number of community groups submitting public comments in
opposition to the mergers included in our case studies. We also reviewed
relevant published literature on CRA, home mortgage lending, and the use
of HMDA data.

Appendix I provides a more detailed discussion of our scope and
methodology.

We conducted our work in Charlotte, NC; Chicago, IL; New York, NY; and
Washington, D.C., between June 1998 and August 1999 in accordance with
generally accepted government auditing standards. We requested
comments on a draft of this report from FRB and OCC. FRB’s and OCC’s
written comments are discussed near the end of this letter and are
reprinted in appendixes VI and VII, respectively. In addition, we provided
Bank One, Chase Manhattan, and Fleet the section of our draft report from
our HMDA analysis on their respective institutions. We incorporated their
technical comments where appropriate.




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                             In acting on a BHC merger application, FRB must consider the
Guidance Has Not             convenience and needs of the community to be served under the BHC Act
Been Developed for           and take into account the records of the relevant depository institutions
Implementing the BHC         under CRA. Neither the BHC Act nor CRA, or their legislative histories,
                             provide guidance on how FRB is to take into account the convenience and
Act and CRA in the           needs of the community when considering a BHC merger application. The
BHC Merger                   federal regulators, including FRB, have developed guidance on how to
Application Process          assess a depository institution’s CRA performance. However, FRB has not
                             developed guidance on how it will evaluate the CRA record, comprising
                             the regulators’ ratings of institutions’ CRA performance and comments
                             from the public, for large BHC merger applications.

The BHC Act Calls for        Under the BHC Act, FRB is required to review the bank holding company’s
                             merger application for the convenience and needs of the communities to
FRB’s Review of Impacts on   be served. FRB has defined convenience and needs to relate to the effect
Convenience and Needs        of a proposal on the availability and quality of banking services in a
                             community. FRB considers convenience and needs as including the record
                             of CRA performance. The requirement to consider the convenience and
                             needs of the community has been included as part of the BHC Act since its
                             original enactment in 1956. In the 1970s, Congress increased the need for
                             depository institutions to focus on the convenience and needs of local
                             communities when it passed CRA. CRA was passed in response to a
                                                              12
                             national concern over redlining practices.

                             CRA requires federal regulators, including FRB, to take into account the
                             CRA record of the applicant in their evaluation of an application related to
                             a deposit facility. CRA defines applications to include (1) applications to
                             establish or relocate a branch or home office and (2) applications for
                             mergers, consolidations, or the purchase of assets or assumption of
                             liabilities of a regulated financial institution. Nonbank subsidiaries of
                             BHCs are not subject to CRA. However, CRA regulations allow bank
                             subsidiaries of BHCs to receive CRA credit for home mortgage loans
                             originated by affiliated nonbank subsidiaries in the delineated areas of the
                             bank subsidiaries.




                             12
                               Redlining is a refusal of lenders to make loans in certain geographic areas, typically minority or low-
                             income neighborhoods, regardless of the creditworthiness of the loan applicant.




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Federal Bank Regulators     The federal depository institution regulators, including FRB, have
                            developed guidance, using rulemaking and additional efforts, on how CRA
Have Developed Guidance     performance should be considered during the applications process for
for Assessing CRA           depository institutions. In 1989, the federal bank regulators published The
Performance During the      Statement of the Federal Financial Supervisory Agencies Regarding the
Application Process for     Community Reinvestment Act (the Statement). The Statement was
                            designed to provide federally insured financial institutions and the public
Depository Institutions     with guidance regarding the requirements of CRA and the policies and
                            procedures the agencies will apply during the depository institution
                            application process. After the performance-based CRA regulations were
                            issued in 1995, FFIEC published Interagency Questions and Answers
                            Regarding Community Reinvestment in 1997 and 1999. The 1989
                            Statement was withdrawn effective April 5, 1999, and replaced by the
                                                                                                        13
                            Interagency Questions and Answers Regarding Community Reinvestment.

                            The 1989 Statement, which was in effect during the mergers contained in
                            our study, included guidance on the following issues:

                          • the basic components of an effective CRA policy,
                          • the role of examination reports on CRA performance in reviewing
                            applications,
                          • the need for periodic review and documentation by financial institutions of
                            their CRA performance, and
                          • the role of commitments in assessing an institution’s performance.

                            Most notably, the regulators concluded in the Statement that the CRA
                            record of the institution, as reflected in its examination reports, would be
                            given great weight in the application process. In the Interagency
                            Questions and Answers for 1999, the regulators continued to stress the
                            significance of the CRA examination in the application process, and they
                            stated that the examination is an important, and often controlling, factor in
                                                                            14
                            the consideration of an institution’s record.

                            In addition to the CRA examination, the regulators have consistently
                            underscored the importance of public comments to the applications
                            process. According to the 1989 Statement, the CRA examination is not
                            conclusive evidence in the face of significant and supported allegations
                            from a commenter. Moreover, the balance may be shifted further when
                            the examination is not recent or the particular issue raised in the

                            13
                                 Questions and Answers Regarding Community Reinvestment, 64 Fed. Reg. 23618-23648 (1999).
                            14
                                 64 Fed. Reg. at 23641.




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                             application proceeding was not addressed in the examination. During the
                             development of the performance-based CRA regulations, a number of
                             commenters expressed concern that the regulators may provide a “safe
                             harbor” to depository institutions from challenges to their CRA
                             performance record in the application process if they achieved an
                             outstanding CRA examination rating. However, in the preamble of the
                             1995 Final Rule on the CRA regulations, the regulators reconfirmed the
                             importance of the public comments in the applications process by
                             acknowledging that materials relating to CRA performance received during
                             the applications process can and do provide relevant and valuable
                             information.

Board Orders Explain BHC     For each BHC application submitted, FRB publicly issues an Order
                             containing its application decision and a discussion supporting its
Application Decisions        decision. FRB officials told us that Board Orders provide a detailed
                             explanation of how the Board arrived at its decision and puts the facts into
                             the context of the specific case at hand. In the FRB officials’ view, Board
                             Orders provide guidance on FRB’s BHC application process. We reviewed
                             the Board Orders approving the six BHC merger applications in our study.
                             The Orders provided insight into issues considered by the Board of
                             Governors. For example, the Orders discussed FRB’s consideration of
                             CRA performance ratings received by bank subsidiaries, recent trends in
                             home mortgage lending by the BHCs, and CRA agreements reached by
                             BHCs with community groups. FRB’s treatment of the various CRA issues
                             appeared to be consistent with that suggested in the 1989 Statement for
                             assessing CRA performance.

FRB Has Not Developed        The BHC Act requires FRB’s approval for formation of a BHC, BHC
                             acquisition of control of another BHC or a subsidiary bank or bank assets,
Additional Guidance on       or the merger of BHCs. There were nearly 6,000 BHCs operating as of
How It Evaluates an          year-end 1998; almost 700 BHC cases of applications were submitted to the
Institution’s CRA            Federal Reserve for approval in 1998. Of these, over 400 were for mergers
Performance in the BHC       and acquisitions. Consistent with the Statement for assessing CRA
                             performance, FRB regulations provide that FRB will take into account the
Merger Application Process   record of performance under CRA of each insured bank and thrift
                             controlled by a BHC applicant and each subsidiary bank proposed to be
                             controlled by an applicant. FRB officials told us that if an institution was
                             examined recently, FRB would be more likely to rely on the rating given by
                             the bank’s primary regulator. If the CRA exam is not recent or there have
                             been significant public comments raising concerns, FRB would be more
                             likely to undertake a review of the institution’s CRA performance and
                             obtain more information from the primary bank regulator. FRB considers




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the CRA performance of the BHC in the delineated areas of its bank
subsidiaries.

Also consistent with the Statement for assessing CRA performance, FRB
regulations require public notice of a BHC application and a specific public
comment period. FRB does not have written guidelines that summarize
how public comments raising CRA concerns are to be used along with
other information in its BHC merger application decisions. An FRB
Associate General Counsel told us that although the BHC Act does not
require a public comment period, FRB voluntarily adopted the requirement
of a notice, comment, and specific comment period because FRB found
the public process helpful.

FRB’s Rules of Procedure state that an applicant must file notice of the
application in the classified advertising legal notices section of the local
newspaper. The notice must state that the public has an opportunity to
                                                             15
comment for at least 30 days after the date of publication. Under the
revised Regulation Y, FRB will not accept late written comments except in
extraordinary circumstances. FRB can extend, and has extended, the 30-
day time frame. According to Regulation Y, the 30-day comment period is
required for all BHC merger applications to acquire an insured depository
institution whether the applications are Board Action cases or delegated to
the Reserve Banks for a decision. BHC officials we interviewed told us
that FRB’s adherence to the public comment period deadlines was better
than it had been in previous BHC mergers.

Relatively few BHC mergers have been protested on CRA grounds. As
shown in table 1, the number of BHC merger/acquisition cases that
                                                             16
received CRA protests was small during the period of 1995-98. In 1998,
the total number of BHC acquisition/merger cases that were protested on
CRA grounds was 18 cases out of 424 BHC merger/acquisition cases.




15
  FRB may, in its discretion, extend the public comment period and, if a person has requested a copy of
a notice or application, FRB may, in its discretion, grant such person an extension of the comment
period for up to 15 calendar days.
16
  We included data on both BHC acquisitions and mergers. Sections 3(a)(3) and 3(a)(5) of the BHC
Act require approval for BHC acquisitions and mergers, respectively. In an acquisition, the applicant is
a BHC and the target institution may be a BHC or a bank subsidiary. In a merger, both the applicant
and the target are BHCs. Determining whether a BHC application was an acquisition or merger
depends on how the transaction was structured.




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Table 1: Number of BHC
Merger/Acquisition Cases Receiving                                                        BHC merger/acquisition cases
CRA Protests                                                                                              Protested
                                                                                                                Percentage of
                                     Year                                                   Total    Number        total cases
                                     1995                                                    386          40             10.4%
                                     1996                                                    359          30                8.4
                                     1997                                                    347          16                4.6
                                     1998                                                    424          18                4.2
                                     a
                                      Protested means those BHC mergers/acquisitions in which FRB received substantive comments
                                     regarding a BHC's lending record or CRA record.
                                     Source: FRB.


                                     The Statement for assessing CRA performance does not specifically
                                     address issues that arise in BHC merger application decisions, such as the
                                     consideration to be given to the activities of nonbank subsidiaries. Large
                                     BHCs comprise bank subsidiaries that are subject to CRA operating in
                                     delineated areas and may include nonbank subsidiaries, such as mortgage
                                     lending companies, that are not subject to CRA operating within and
                                     outside of the delineated areas of the bank subsidiaries. However, CRA
                                     regulations allow bank subsidiaries of BHCs to receive CRA credit for
                                     home mortgage loans originated by their affiliated nonbank subsidiaries in
                                     the delineated areas of the bank subsidiaries.

                                     In reviewing the six BHC merger applications, it appeared to us that FRB
FRB’s CRA                            attempted to balance the CRA performance ratings with information that
Performance Review                   raised concerns with the institutions’ CRA performance obtained through
Process for the Six                  the public comment process. All of the bank subsidiaries in our selected
                                     merger cases received a satisfactory or better CRA rating from their
Large BHC Merger                     primary federal bank regulator. The four principal CRA concerns raised in
Applications Lacked                  public comments were (1) an insufficient amount of home mortgage
Transparency                         lending in LMI areas, (2) an insufficient amount of small business lending
                                     in LMI areas, (3) expected bank branch closures in LMI areas, and (4) a
                                     lack of specificity in CRA agreements. FRB appeared to give more weight
                                     to CRA performance ratings and concerns with home mortgage and small
                                     business lending than to other concerns raised. FRB conducted analyses
                                     with HMDA and CRA small business data to address concerns of
                                     insufficient home mortgage and small business lending, respectively.
                                     FRB’s consideration of branch closures was generally limited to a
                                     determination of whether the applicant had an adequate branch closure
                                     policy and its past branch closure record. According to FRB officials, CRA
                                                 17
                                     agreements did not play a role in FRB’s assessment of the six merger

                                     17
                                        There is no consensus among banks and community groups on a definition of a CRA agreement. CRA
                                     agreements can be called agreements, pledges, or commitments. The level of involvement by the




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                                   cases. FRB does not have written guidance on how it considers the
                                   sufficiency of home mortgage and small business lending or what branch
                                   closure policy it would consider adequate. FRB’s lack of written guidance
                                   on how it addresses public comments contributed to the concerns voiced
                                   by the community groups and BHC applicants we contacted regarding the
                                   lack of transparency in the merger application process.

All of the Bank Subsidiaries       All of the bank subsidiaries in the six merger cases received a CRA
                                   performance rating of satisfactory or better. Over half of the lead bank
Received a Satisfactory            subsidiaries owned by the applicants and the target institutions received
Rating or Better                   an outstanding CRA rating from their primary bank regulators. CRA
                                   performance ratings for the bank subsidiaries in our study are presented in
                                   appendix II.

                                   The CRA ratings of the bank subsidiaries in our study were similar to the
                                   CRA ratings of their peers. As table 2 shows, all large bank subsidiaries
                                   (assets of $10 billion or greater) examined by OCC and FRB received
                                   either outstanding or satisfactory ratings during the period of 1995-98.

Table 2: The Distribution of CRA
Performance Ratings for Large                                                Performance rating
Banks Examined by OCC and FRB,                                                    Needs to      Substantial                   Number
1995-98                            Regulator           Outstanding Satisfactory   improve noncompliance                      of banks
                                   OCC                          17            9          0               0                         26
                                   FRB                          12           12          0               0                         24
                                   Sources: FRB and OCC.


                                   For all BHC mergers, including the six cases that we reviewed, FRB’s
                                                                                           18
                                   Division of Consumer and Community Affairs (DCCA) screened the most
                                   recent CRA ratings of both the bank subsidiaries of the applicant
                                   institution and the target institution. According to FRB officials, this task
                                   was a major component of FRB’s review of each merger application.
                                   Absent any ratings issues or CRA allegations, according to DCCA officials,
                                   DCCA generally focuses its CRA examination analysis on the lead banks of
                                   the applicant and the target institution. Since the new CRA regulations for
                                   large banks were not effective until July 1997, almost all of the public
                                   evaluation reports on the lead banks of the BHCs involved in the six BHC

                                   community groups and the level of specificity differentiates the various types of agreements. In some
                                   cases, community groups negotiate with the banks regarding specific CRA goals to be reached in the
                                   community. These are referred to as negotiated agreements. Another type of community agreement is a
                                   pledge. Generally, banks that make pledges consider input from community groups, but the bank
                                   unilaterally formulates the final pledge.
                                   18
                                    Among its responsibilities, DCCA is charged with reviewing bank and bank holding company
                                   applications for CRA and compliance issues.




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                              mergers were completed under the old process-oriented CRA regulations.
                              According to the DCCA Manager for Applications, DCCA will do additional
                              analysis on the CRA records of the applicant and the target institution
                              when comments regarding the institutions’ CRA records are sent.

DCCA Was Dependent on         DCCA was generally dependent on CRA examination information from the
                              other federal bank regulators for assessing the CRA performance of large
CRA Examination               BHCs. In the six merger cases, FRB did not have its own on-site CRA
Information From the Other                                          19
                              information on the bank subsidiaries. A federal regulator other than the
Federal Bank Regulators for   FRB supervised almost all of the bank subsidiaries of the BHCs in the six
Assessing the CRA             merger cases. Of the six merger cases, only the lead bank of the Chemical
                              Banking Corporation was supervised by FRB. The lead banks of the other
Performance of Large BHCs     11 BHCs were supervised by OCC. DCCA staff told us that FRB does not
                              second-guess the CRA examinations conducted by the other federal bank
                              regulators. The purpose of FRB’s review of the CRA record is not to
                              reexamine the banks for CRA compliance.

                              We were told by DCCA analysts that after the initial screening of the CRA
                              ratings, they reviewed the most recent public evaluation report of the lead
                              bank of the applicant and the target institution. If the DCCA analyst
                              determined it was warranted, he or she talked with the OCC CRA
                              compliance examiner. In three of the five merger cases in which FRB was
                              not the primary bank regulator of the lead bank of the applicant—Fleet-
                              Shawmut, NationsBank-BankAmerica, and Bank One-NBD First Chicago,
                              DCCA analysts contacted OCC for additional supervisory information.
                              FRB officials told us that additional supervisory information was not
                              obtained in the NationsBank-Boatmen’s merger because the July 1995 CRA
                              examination of NationsBank was relatively current.

                              In two of the merger cases, NationsBank-BankAmerica and Bank One-NBD
                              First Chicago, DCCA reviewed CRA information from OCC that was more
                              than 2 years old. During the application review, OCC was examining the
                              lead banks of both NationsBank and Bank One. In the absence of recent
                              examinations of the lead banks, DCCA analysts obtained limited
                              information from OCC’s ongoing examinations for these two cases.
                              According to an OCC official, the implementation of OCC’s new
                              performance-based CRA examination procedures for the 30 largest
                              national banks caused delays in the frequency of examinations for these
                              institutions.


                              19
                               Bank holding companies are not subject to CRA; therefore, they are not inspected by the Federal
                              Reserve Banks for CRA compliance performance.




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All of the BHC Mergers in        FRB received public comments addressing a wide variety of issues,
                                 including CRA issues, for all six mergers. The number of comments ranged
Our Study Were Protested         from a high of over 1,600 comments for NationsBank’s acquisition of
on CRA and Other Issues          BankAmerica to a low of 17 comments for NBD’s acquisition of First
                                 Chicago. The number of public comments that FRB received for the other
                                 4 mergers ranged from about 50 to about 300. For each merger, the
                                 majority of the comments were in support of the merger. Among the
                                 comments in opposition to each of the six mergers, FRB received public
                                 comments criticizing the CRA performance of either the applicant or the
                                 target institution. In addition to considering written comments, FRB
                                 conducted public meetings for four of the six mergers: (1) Fleet’s
                                 acquisition of Shawmut, (2) Chemical’s acquisition of Chase, (3)
                                 NationsBank’s acquisition of BankAmerica, and (4) Bank One’s acquisition
                                                         20
                                 of NBD First Chicago.

Home Mortgage Lending,           The four principal CRA concerns raised in the six mergers were (1) an
                                 insufficient amount of home mortgage lending in LMI areas, (2) an
Small Business Lending,          insufficient amount of small business lending in LMI areas, (3) expected
Branch Closures, and CRA         bank branch closures in LMI areas, and (4) the lack of specificity in CRA
Agreements Were the Four         agreements. A summary of comments raising these concerns for each of
Principal CRA Public             the six BHC mergers is presented in appendix III.
Concerns in the Six Mergers

Commenters Raised Concerns of    For the six mergers, commenters raised concerns that either the
Insufficient Home Mortgage and   applicant’s or the target institution’s performance was generally
Small Business Lending in LMI    inadequate in providing mortgage lending to minority groups and in LMI
Areas                            areas. In many cases, commenters included statistical results from HMDA
                                 analysis to help support their claims of insufficient home mortgage
                                 lending.

                                 FRB received comments alleging an insufficient level of small business and
                                 rural lending for two mergers, NationsBank’s acquisition of BankAmerica
                                 and Bank One’s acquisition of NBD First Chicago. Comments related to
                                 small business lending only affected the later two BHC mergers because
                                 banks were not required to collect small business data and submit the data
                                 to their primary bank regulator until 1996.




                                 20
                                    FRB has discretion as to whether to provide an opportunity for formal hearings or allow interested
                                 persons to present their views orally before the Board of Governors. Unless otherwise ordered, any
                                 oral presentation is public and notice of the public proceeding is published in the Federal Register.




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Commenters Raised Concerns    In all six mergers, commenters were concerned with the number and
That Branch Closures Would    location of banking branches that would be closed in LMI areas after the
Have a Negative Impact Upon   merger and the resulting impacts on LMI areas. Commenters generally
LMI Areas                     referred to bank holding company branch closure practices in previous
                              mergers to support their claim that the pending mergers would result in
                              similar closings. For example, during the application process for Bank
                              One’s acquisition of NBD First Chicago, a community group cited Bank
                              One’s closure of branches after its acquisition of First USA and noted that
                              the branches closed by Bank One were located in predominantly minority
                              communities and LMI areas.

Commenters Criticized         Community groups wanted CRA agreements that centered on banks’
Agreements Reached in Three   establishing, or pledging, specific lending and investment activities that
BHC Mergers                   serve the banks’ delineated areas, including LMI areas. The community
                              groups we contacted told us that CRA agreements are beneficial in
                              meeting the convenience and needs of LMI communities, such as obtaining
                              affordable mortgage loans or small business loans. Of the six mergers we
                              reviewed, FRB received comments on the issue of community agreements
                              or pledges for three BHC mergers: Chemical’s acquisition of Chase,
                              NationsBank’s acquisition of BankAmerica, and Bank One’s acquisition of
                              NBD First Chicago.

                              Pledges issued by Chemical Bank and NationsBank were criticized for
                              lacking specific lending goals. Chemical Bank issued a pledge for
                              increased lending and community development funding of $18.1 billion
                              primarily in New York, New Jersey, Connecticut, and Texas. The goals of
                              the pledge included loans and investments to assist small businesses,
                              affordable mortgages, and commercial and economic development.
                              According to the summary of comments prepared by FRB, commenters
                              criticized the pledge as inadequate because it was not enforceable, could
                              not be monitored by community groups, was too vague to be meaningful,
                              and did not identify the amount of lending that would be made within
                              specific communities. Before its merger with BankAmerica, NationsBank
                              made a 10-year pledge of $350 billion, for community development lending
                              and investment. The comments were similar to those made for Chemical
                              Bank’s pledge. NationsBank’s pledge was also criticized for lacking
                              geographic detail and enforceability.

                              In 1998, before Bank One’s acquisition of NBD First Chicago, a Chicago
                              community group obtained a CRA commitment from NBD First Chicago
                              and Bank One. The CRA commitment included, among other features,
                              increased bank lending to small businesses in Chicago’s LMI areas.




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                            Community groups criticized Bank One for not making commitments in
                            other areas where Bank One is located.

FRB Attempted to Address    FRB attempted to address three of the four CRA concerns that were raised
                            in public comments. FRB appeared to give more weight to concerns with
Concerns Raised in Public   home mortgage and small business lending than to branch closure
Comments                    concerns raised. DCCA conducted analyses of HMDA and CRA small
                            business data to address concerns of insufficient home mortgage and small
                            business lending when it became available, respectively. Generally, the
                            statistical results from DCCA’s analyses indicated that the lending activity
                            in question was sufficient. In situations where statistical results from
                            DCCA’s HMDA analyses indicated that the lending activity in question may
                            not have been sufficient, FRB generally emphasized CRA performance
                            ratings and cited limitations in the use of HMDA statistics. FRB faced
                            limitations in its legal authority to address branch closure concerns. FRB
                            approved four of the mergers with conditions for the reporting of branch
                            closures. According to FRB officials, CRA agreements did not play a role
                            in FRB’s assessment of the six merger cases. For each merger, DCCA
                            prepared a memorandum to the Board of Governors containing findings
                            and recommendations. The Board of Governors accepted DCCA’s
                            recommendations for each of the six mergers.

FRB Analyzed HMDA Data to   To address the concern of insufficient home mortgage lending, FRB’s
Address Home Mortgage       DCCA generated a large number of statistical tabulations using HMDA
Concerns                    individual loan file data containing the mortgage lending activity for each
                            BHC across a large number of geographic areas. DCCA analysts reviewed
                            HMDA data submitted by commenters, but used their own HMDA data
                            analysis. According to DCCA analysts, many of the commenters did not
                            include the home mortgage lending of the nonbank subsidiaries in their
                            analysis. In its HMDA analysis, DCCA included home lending of nonbank
                            mortgage subsidiaries in the delineated areas of the bank subsidiaries
                            because such lending qualifies for CRA credit. Examples of FRB analysis
                            with HMDA data in response to public comments are contained in
                            appendix IV.

                            For each merger application, DCCA produced statistical tabulations for
                            geographic areas where home mortgage lending concerns were raised. For
                            example, NationsBank’s acquisition of BankAmerica generated a large
                            number of comments raising concerns in a number of states, counties, and
                            MSAs. For each geographic area (i.e., a state, county, or MSA) where
                            concerns of insufficient mortgage lending in LMI areas were raised, the
                            statistical tabulations were uniformly reported. The statistical tabulations
                            generated and analyzed by DCCA generally did not cover subsets of LMI



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areas. To respond to comments on these areas, DCCA analysts told us that
they relied on information supplied by the applicant or the Federal Reserve
Bank analyzing the merger.

DCCA analyzed the statistical tabulations and prepared a memorandum for
each BHC application to the Board of Governors. The memorandums
focused on the tabulations that the DCCA analysts thought would be most
useful to the Board. Additional statistics were provided in an appendix to
each memorandum. The Board voted to approve each merger in our study.

Statistics in the memorandum for each BHC merger application generally
emphasized the recent trends in mortgage applications from the LMI areas
and minority group applicants referenced in the comment letters. In most
cases where public concerns of insufficient mortgage lending were raised,
the statistical tabulations within the memorandum indicated that
applications from LMI areas and the referenced minority group’s
applicants increased in the most recent 2- to 3-year period before the
                     21
merger application. In situations where statistical results from FRB’s
HMDA analyses appeared to indicate that the lending activity in question
may not have been sufficient, FRB tended to emphasize CRA performance
ratings and cited limitations in the use of HMDA statistics.

There are other measures of mortgage loan sufficiency that were not
contained in the memorandums. In particular, DCCA analysts calculated
                   22
the portfolio share of a BHC’s total mortgage originations in the relevant
state, county, or MSA accounted for by mortgage originations from LMI
census tracts and applicants classified with reference to a particular
minority group. The portfolio shares for all institutions originating
mortgages in the relevant state, county, or MSA were also generated by
DCCA. This statistic can be considered a benchmark to which each BHC’s
portfolio share could be compared. Examples of these statistics are
included in appendix IV when we refer to all institutions in the six tables.
Generally, the BHCs’ portfolio shares were similar to or exceeded the
                                                   23
corresponding portfolio share for all institutions.



21
     Examples of the application statistics are included in the six tables in appendix IV.
22
  Portfolio share is defined as the total number of loan originations for a given institution in the census
tracts being analyzed divided by the total number of loans originated by the institution in the
metropolitan area.
23
 The one exception occurred in the case of public concerns raised in NationsBank’s acquisition of
BankAmerica with respect to mortgage lending to Hispanics in Texas. The percentage of NationsBank
mortgage originations in Texas to Hispanic applicants declined in 1996 and 1997. In both years,




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                                 Generally, the statistical results from DCCA’s analyses indicated that the
                                 lending activity in question was sufficient. Therefore, the Board generally
                                 found that the commenters’ concerns were not supported by DCCA’s
                                 HMDA analysis and the institution’s CRA record.

                                 Most of the comments that raised concerns of insufficient mortgage
                                 lending were directed toward delineated areas of the BHCs’ bank
                                 subsidiaries subject to CRA. However, comments were received that
                                 raised such concerns for nonbank mortgage lending subsidiaries outside of
                                 the delineated areas of the BHCs’ bank subsidiaries. For example, 1
                                 comment on Chemical’s acquisition of Chase stated that Chase did not
                                 make substantial loans to applicants from LMI communities in 15 MSAs,
                                 many of which were not included in the delineated areas of Chase’s bank
                                 subsidiaries. We identified one commenter who made this general
                                 comment for numerous BHC mergers. He told us that FRB has a
                                 responsibility to address such comments because the BHC Act, which
                                 governs the bank and nonbank subsidiaries of a BHC, calls upon FRB to
                                 assess the impacts of the BHC merger on convenience and needs. FRB
                                 responded to this general comment by stating that nonbank subsidiaries of
                                 BHCs are not subject to CRA and their lending is only relevant in the
                                 delineated areas of the bank subsidiaries. According to a DCCA analyst,
                                 the purpose of CRA is to encourage the bank to make loans where it is
                                 collecting deposits.

FRB Analyzed Small Business      In Bank One’s 1998 acquisition of NBD First Chicago, a Wisconsin
Data to Address Small Business   community group stated that the majority of Bank One’s small business
Lending Concerns                 lending was targeted to larger businesses, and that the bank’s volume of
                                 small farm loans was low. In addition to requesting that Bank One respond
                                 to this criticism, the DCCA analyst performed her own analysis of Bank
                                 One’s small business lending. In NationsBank’s 1998 acquisition of
                                 BankAmerica, FRB assessed small business lending and small farm lending
                                 in seven states. In this case, the DCCA analyst performed analysis of
                                 NationsBank’s small business lending. FRB did not find a basis for
                                 concern in either case.

FRB Faces Limitations in         The availability of bank services and offices after a merger is one of the
Addressing Branch Closure        factors to be considered by FRB in assessing the effect of the merger on
Concerns                         convenience and needs. According to FRB officials, if preliminary branch
                                 closure information is received, DCCA reviews the information to
                                 determine if any of the proposed closures are in LMI areas and, if so, asks

                                 NationsBank’s portfolio share was less than the corresponding portfolio share for all institutions (see
                                 table 5 in app. IV).




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the reason for the closures, the proximity of the receiving branch, and
what actions the applicant plans to take to mitigate the impact on that
community. The officials stated that they undertook such an analysis on
the Chemical-Chase merger application. The law does not provide the
regulators with the authority to prohibit banks from closing a branch. If
the applicant has not developed final plans for branch closings, FRB’s
consideration of branch closures is limited to a determination of whether
the applicant has an adequate branch closure policy, and any branch
closings that do occur can only be assessed in future CRA examinations
                                24
and BHC merger applications. Branch closures could affect a bank’s
subsequent CRA performance rating if the closures were associated with a
decline in lending, investment, or services in the bank’s delineated areas.
The Board of Governors placed a branch closure reporting requirement on
                                                       25
four of the BHC mergers as a condition for approval. According to FRB
officials, when a branch closure reporting requirement is placed on an
applicant, a message is sent to the applicant that the Board is interested in
such plans and will be reviewing the closures associated with the
application in the context of future applications. Because FRB cannot
prohibit banks from closing branches, it is unclear what effect the
conditional approvals would have on the number of branch closings in LMI
areas.

Depository institution regulators do not have the legal authority to prohibit
banks from closing a branch. Insured banks and thrifts must post notice to
the public at least 30 days before closing a branch and provide their
regulators with at least a 90-day notice. Under performance criteria of the
CRA examination’s Service Test, the regulators are to review the bank’s (1)
distribution of branches among low-, moderate-, middle-, and upper-
income areas and (2) record of closing and opening branches, particularly
in LMI areas. However, if a bank can demonstrate to the examiner that
retail banking services can be provided to LMI areas through alternative
systems, such as automated teller machines, telephone banking, or mobile
banking, the bank can receive credit under the Service Test without the
brick and mortar of a branch.


24
  The 1989 Statement points to an institution’s adoption of “a written corporate policy concerning
branch closings which contains provisions for appropriate notice, analysis of the impact of the closing
on the local community, and efforts that may be made to minimize any adverse effects” as a step taken
by institutions with the most effective programs for meeting their CRA responsibilities.
25
   Under Regulation Y, the Board of Governors may impose conditions on any approval, including
conditions to address competitive, financial, managerial, safety and soundness, convenience and
needs, compliance, or other concerns to ensure that approval is consistent with the relevant statutory
factors and other provisions of the BHC Act.




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                                  In four of the six merger cases, the Board of Governors placed a reporting
                                  requirement regarding branch closures as a condition for approval. The
                                  four mergers were Fleet’s acquisition of Shawmut, NationsBank’s
                                  acquisition of Boatmen’s, NationsBank’s acquisition of BankAmerica, and
                                  Bank One’s acquisition of NBD First Chicago. For each of the four
                                  mergers, the Board of Governors required the applicant to provide the
                                  Federal Reserve System with periodic reports on the number of branch
                                           26
                                  closings resulting from the merger and to show how it planned to
                                  minimize the impact of these closings on LMI areas. According to the
                                  DCCA Manager for Applications, applicants are not required to submit
                                  branch closure plans as part of the application. However, the Board of
                                  Governors generally orders branch closure reports from those applicants
                                  who have not submitted branch closure plans during the application
                                  process. Except for Fleet Financial Group, none of the four, who were
                                  required to submit reports, had submitted a branch closure plan.

                                  Because FRB cannot prohibit banks from closing branches, it cannot
                                  directly affect branch closures in designated areas. Branch closures in
                                  LMI areas, however, could potentially affect future CRA performance
                                  ratings. In addition, FRB officials told us that the applicant may apply for
                                  merger again in the future. For example, the DCCA analyst, who reviewed
                                  the NationsBank-BankAmerica merger, told us that they considered
                                  NationsBank branch closures subsequent to its acquisition of Boatmen’s in
                                  approving its merger with BankAmerica.

CRA Agreements Did Not Play a     According to FRB officials, CRA agreements did not play a role in FRB’s
Role in FRB’s Assessment of the   assessment of the merger application. This view is supported by
Six Merger Cases                  statements in the Board’s Orders. Using the 1989 Statement as its basis,
                                  FRB considers CRA agreements as private agreements between the banks
                                  and the community groups. DCCA officials told us that CRA does not
                                  provide the regulators with the enforcement authority to assess a bank’s
                                  compliance with CRA agreements. Pledges were not considered either.
                                  DCCA staff said they did not consider the pledges of Chemical Bank and
                                  NationsBank or the commitment negotiated by NBD First Chicago when
                                  developing their recommendations to the Board of Governors.

                                  BHC officials and community groups we interviewed had opposing views
                                  on whether FRB should consider the agreements during the application

                                  26
                                   In many cases, a branch closed from a merger may be technically a consolidation. A consolidation is
                                  considered a relocation if the branch is located within the same neighborhood and the nature of the
                                  business or customers served is not affected. In less densely populated areas, where neighborhoods
                                  extend farther and a long move would not significantly affect the nature of the business or the
                                  customers served by the branch, a relocation may occur over substantially longer distances.




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                             process. The BHC officials we interviewed supported the position that
                             regulators should not consider CRA agreements as part of the institutions’
                             CRA record. We were told by community development officials at two
                             BHCs that the CRA agreements are significant in terms of external
                             relations for the BHC with its communities. According to these officials,
                             the primary purpose of the commitments and pledges was not to influence
                             the regulatory process, since FRB does not consider the agreements of the
                             applicant as a part of its analysis of the applicant’s CRA record.
                             Alternatively, community groups we interviewed want FRB to consider the
                             banks’ compliance with those agreements as part of its assessment of the
                             applicant’s CRA record.

The BHC Merger Application   FRB’s lack of written guidance for how it addresses public comments
Process Lacks Transparency   contributed to the concerns voiced by some community groups and two
                             BHCs regarding the lack of transparency in the merger application
                             process. Several of the community groups who submitted comments told
                             us that they did not understand the process by which FRB approved the
                             six BHC mergers and how FRB considered their public comments raising
                             concerns. The community group officials told us that FRB does not have
                             written criteria for how it assesses merger applications, and FRB did not
                             explain its process when community groups met with FRB officials. Some
                             of the officials told us that while FRB conducted HMDA analysis, it did not
                             criticize the applicant’s lending performance on the basis of the analysis.

                             Two BHC community development officials told us that they did not
                             understand why they needed to provide the Federal Reserve with
                             redundant information when they had established good CRA records. One
                             BHC official stated that if a bank has been examined for CRA, why should
                             the Federal Reserve have to reexamine the bank. The banking official’s
                             perception of FRB’s CRA review was different from that of FRB officials
                             who do not consider their review process to be a reexamination of the
                             bank’s CRA performance. The BHC officials told us that during the
                             application process, FRB will ask for redundant information. According to
                             the officials, even if FRB has requested information from the applicant on
                             a particular issue, it would request the same information again from the
                             applicant if it subsequently received comment letters on the same issue.

                             Commenters who raised concerns often expressed judgments that were
                             critical of the BHC applicant, the BHC to be acquired, and the bank and
                             nonbank subsidiaries of the BHCs. The merging BHCs have a business
                             interest in completing the merger in a timely manner with minimal
                             disruption to their future consolidation efforts. Therefore, the implications




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                               of FRB’s actions are of major importance to the parties involved in this
                               process.

                               By analyzing three large BHC mergers using appropriate statistical
Bank Merger Activity           measures and benchmarks for lending performance, we found that after
Was Not Associated             none of the three mergers was there a disproportionate decline in single-
                                                                                                 27
With Adverse Change            family home mortgage lending to minority and LMI census tracts. NBD
                               Bancorp’s acquisition of First Chicago was associated with fairly stable
in Mortgage Lending in         market share of loans in LMI and minority census tracts in the Chicago
Minority and LMI               MSA. Fleet Financial Group’s acquisition of Shawmut National Bank was
Areas for Three BHC            associated with a decline in Fleet’s market share in minority and LMI
Mergers                        census tracts that mirrored Fleet’s decline in overall market share in the
                               Boston MSA. Chemical Bank’s acquisition of Chase Manhattan Bank was
                               associated with increased market and portfolio share lending in minority
                               and LMI census tracts in 1997, as compared to the combined lending by the
                               two competing institutions in 1995.

Our Statistical Results Were   Using HMDA data for each institution, we constructed and analyzed its
                               market share of loan originations and the distribution of originations
Generally Consistent Using     (portfolio share) across specified geographic areas. Our statistical results
Alternative Measures of        using two measures, one for conventional loans and one for all loans, were
                                                                        28
Home Mortgage Lending          generally consistent with one another. For each universe of home
Performance                    mortgage lending used, we calculated the market share of loan originations
                               in LMI, minority census tracts, and all census tracts that made up the MSA.
                               We also calculated the portfolio share of loan originations in LMI and
                               minority census tracts by the combined BHC. The market share of loan
                               originations is defined as the number of loan originations for a given
                               institution divided by the number of loan originations by all lenders in the
                               census tracts being analyzed. Portfolio share is defined as the number of
                               loan originations for a given institution in the LMI and minority census
                               tracts being analyzed divided by the number of loans originated by the
                               institution in the MSA. The lending of both BHCs before the merger and
                               the lending of the combined BHC after the merger were included in our
                               market and portfolio share measures. In addition, the market share of loan
                               originations by both BHCs in all census tracts in the MSA was used as a
                               benchmark in assessing market share changes in LMI and minority census
                               tracts.
                               27
                                  We defined a minority census tract as one where members of minority groups comprise 20 percent or
                               more of the census tract’s households. We defined a LMI census tract as one where median family
                               income for the census tract did not exceed 80 percent of the median family income for the MSA.
                               HMDA data are the source for all lending measures.
                               28
                                 Our statistical results using a broader universe of all single-family home mortgage lending are
                               presented in appendix V.




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                                       B-280468




                                       Our statistical results were also generally consistent using two different
                                       universes of home mortgage lending, (1) conventional, single-family home
                                       purchase loan originations and (2) all single-family mortgage loan
                                       originations. A conventional, single-family home purchase mortgage loan is
                                       defined as a single-family mortgage loan that is not insured or guaranteed
                                       by the federal government, and that is for the purpose of financing the
                                       purchase of a home. For each merger, we analyzed market and portfolio
                                                                                                                  nd
                                       shares for the years beginning 1 year before the acquisition through the 2
                                       year after the acquisition was completed. For the three case studies used
                                       here, the market corresponded to the MSA where the acquired BHC’s lead
                                       banking subsidiary is located. The resulting MSAs were Chicago, Boston,
                                       and New York for NBD’s acquisition of First Chicago, Fleet’s acquisition of
                                       Shawmut, and Chemical’s acquisition of Chase, respectively.

NBD First Chicago Bank                 As shown in table 3, NBD’s 1995 acquisition of First Chicago is associated
                                       with fairly stable market share in the Chicago MSA and a slight increase in
Merger Showed Fairly                   market share in both LMI and minority census tracts. For conventional,
Stable LMI and Minority                single-family home purchase loans, the market shares for both LMI and
Lending                                minority census tracts increased from 1994-97. Portfolio shares rose
                                       slightly for conventional home purchase loan originations in LMI and
                                       minority communities. The overall increase in conventional, single-family
                                       home purchase loan originations for the Chicago MSA was modest in
                                       magnitude during the period of 1994-97.

Table 3: Market and Portfolio Shares
for NBD/First Chicago Bank Holding                                                          Bank holding company
Companies for Conventional, Single-                                                   NBD/First Chicago          NBD
Family Home Purchase Loan              Market or portfolio share                        1994       1995     1996     1997
Originations in the Chicago MSA        Market share of loan origination for             4.6%       6.2%     5.0%     5.5%
                                        Chicago MSA
                                       Market share of census tracts that were:
                                         LMI                                              5.3         5.9       5.7       6.3
                                         Minority                                         5.4         6.2       5.4       6.4
                                       Portfolio share of census tracts that were:
                                         LMI                                             11.0       10.4       10.9      12.6
                                         Minority                                        26.9       24.0       24.5      28.2
                                       Source: HMDA data.


Fleet Merger Had Reduction             Fleet’s 1995 acquisition of Shawmut National Bank is associated with a
                                       reduction in mortgage lending to LMI and minority census tracts that
in Lending in LMI and                  mirrored Fleet’s overall reduction in mortgage lending for the Boston MSA.
Minority Areas That                    According to Fleet Financial Group officials, over the period of 1994-97,
Mirrored Its Reduction in              the Boston MSA experienced a significant influx of mortgage lenders that
the Overall Market                     resulted in competitive pressures and a subsequent reduction in residential
                                       mortgage lending among existing lenders in that market. As shown in table


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                                        B-280468




                                        4, market share statistics for conventional, single-family home purchase
                                        loan originations indicated large declines for both LMI and minority census
                                        tracts as well as overall in the Boston MSA. Portfolio shares only declined
                                        slightly.

Table 4: Market and Portfolio Shares
for Fleet/Shawmut Bank Holding                                                                       Bank holding company
Company for Conventional, Single-                                                                 Fleet/Shawmut          Fleet
Family Home Purchase Loan               Market or portfolio share                                 1994      1995     1996    1997
Originations in the Boston MSA          Market share of loan origination for Boston               9.2%     11.5%     6.1%    4.3%
                                         MSA
                                        Market share of census tracts that were:
                                          LMI                                                      26.3        27.1         14.7      10.2
                                          Minority                                                 32.8        32.7         17.2      11.6
                                        Portfolio share of census tracts that were:
                                          LMI                                                      34.4        32.3         33.2      32.6
                                          Minority                                                 27.1        25.7         25.3      24.5
                                        Source: HMDA data.


Chase Manhattan Bank                    As shown in table 5, Chemical Bank’s 1996 acquisition of Chase Manhattan
                                        Bank is associated with increased market and portfolio shares of loan
Merger Showed an Increase               originations in LMI census tracts. Market and portfolio shares in minority
in LMI and Minority Lending             census tracts were fairly stable.

Table 5: Market and Portfolio Shares
for Chemical/Chase Manhattan Bank                                                                  Bank holding company
Holding Companies for Conventional,                                                           Chemical/Chase           Chase
Single-Family Home Purchase Loan        Market or portfolio share                             1995       1996      1997     1998
                                                                                                                                a
Originations in the New York City MSA   Market share of loan origination for New             14.3%     13.8%      14.4%
                                         York City MSA
                                        Market share of census tracts that were:
                                                                                                                                           a
                                          LMI                                                  10.6          11.8          18.2
                                                                                                                                           a
                                          Minority                                             13.0          12.8          14.4
                                        Portfolio share of census tracts that were:
                                          LMI                                                   6.4           6.2          10.0      9.9%
                                          Minority                                             39.0          37.9          40.4       41.7
                                        a
                                        FRB provided us with 1998 HMDA data that allowed us to calculate portfolio, but not market share
                                        measures of lending performance.
                                        Source: HMDA data.


                                        In acting on a BHC merger application, FRB must consider the
Conclusions                             convenience and needs of the community to be served under the BHC Act
                                        and take into account the CRA records of the relevant banks. FRB’s
                                        Regulation Y, promulgated under the BHC Act, requires public notice of a
                                        BHC application and a specific public comment period. FRB said it
                                        voluntarily adopted the requirement of notice, comment, and specific
                                        comment period because it found the public process helpful.


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                  B-280468




                  In the six BHC merger applications that we reviewed, it appeared to us
                  that FRB attempted to balance the CRA performance ratings of the bank
                  subsidiaries of the merging BHCs with information presented through
                  public comments that raised concerns with the institutions’ CRA records.
                  Both the BHC applicants and the community groups raising CRA concerns
                  lacked relevant information on how FRB analyzes an institution’s CRA
                  record. The implications of FRB’s actions are of major importance to the
                  parties involved in the BHC merger application process. The merging
                  BHCs have a business interest in completing the merger in a timely manner
                  with minimal disruption of their future consolidation efforts. The
                  community groups that submit comments on large BHC mergers have an
                  interest in ensuring that specific community credit issues are being
                  addressed.

                  A more transparent process is needed regarding how FRB balances the
                  CRA ratings of banks, particularly those with good CRA ratings, such as
                  the banks in our study, with public comments raising CRA concerns. A
                  more transparent process could be useful for both BHC applicants and
                  public commenters. Enhanced transparency could improve the BHC
                  applicants’ understanding of what information is expected of them, what
                  role public comments play in FRB’s CRA review, and what information
                  FRB focuses on in response to different CRA concerns. In addition, a
                  more transparent process may contribute to more focused public
                  comments from community organizations and provide commenters with
                  knowledge of how FRB analyzes an institution’s CRA record, such as its
                  home mortgage lending performance.

                  To enhance the transparency and improve the efficiency with which CRA
Recommendation    concerns are addressed in the BHC merger application process, we
                  recommend that FRB develop written guidelines that summarize how
                  public comments raising CRA concerns are used with CRA examination
                  information in FRB’s merger application decisions for large BHCs. For
                  example, such guidelines could summarize important conclusions from
                  previous Board of Governors application decisions. Such guidelines could
                  also include when and how concerns raised in public comments will be
                  considered, the types of analyses FRB is likely to conduct and rely upon in
                  reaching its conclusions, and the situations in which HMDA statistics are
                  limited.

                  We received written comments on a draft of this report from FRB that are
Agency Comments   reprinted in appendix VI. FRB generally agreed with our recommendation
                  that it develop written guidelines to enhance the transparency of the
                  process. The letter stated that FRB will consider how best to convey



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B-280468




useful information focusing on the CRA aspects of the application process
and discussed information that could be included in an FRB guide to the
process. In addition, FRB provided technical comments, which we have
incorporated where appropriate.

We received written comments on a draft of this report from OCC that are
reprinted in appendix VII. OCC also provided technical comments, which
we have incorporated where appropriate.

We are sending copies of this report to Senator Phil Gramm and Senator
Paul Sarbanes and to Representative Barney Frank, Representative John
LaFalce, Representative Rick Lazio, Representative Jim Leach,
Representative Marge Roukema, and Representative Bruce Vento in their
capacities as Chair or Ranking Minority Member of Senate and House
Committees and Subcommittees. We are also sending copies of this report
to the Honorable Alan Greenspan, Chairman of the Board of Governors of
the Federal Reserve System; the Honorable John Hawke, Comptroller of
the Currency; and others upon request.

Please call me or Bill Shear, Assistant Director, at (202) 512-8678 if you or
your staffs have any questions concerning this report. Key contributors to
this report are acknowledged in appendix VIII.




Thomas J. McCool
Director, Financial Institutions
 and Markets Issues




Page 27               GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
Contents



Letter                                                                                                 1


Appendix I                                                                                            34
                          FRB’s Legal Responsibilities                                                34
Scope and                 FRB’s Process for Reviewing BHC Merger Applications                         34
Methodology               Premerger and Postmerger Home Mortgage Lending                              35


Appendix II                                                                                           37
                          NBD’s Acquisition of First Chicago                                          37
Premerger Bank            Fleet’s Acquisition of Shawmut                                              38
Subsidiary CRA            Chemical’s Acquisition of Chase Manhattan                                   39
                          NationsBank’s Acquisition of Boatmen’s Bancshares                           40
Performance Ratings       NationsBank’s Acquisition of BankAmerica                                    43
                          Bank One’s Acquisition of NBD First Chicago                                 44


Appendix III                                                                                          46
                          NBD’s Acquisition of First Chicago                                          46
Discussion of Principal   Fleet’s Acquisition of Shawmut                                              46
CRA Concerns Raised       Chemical’s Acquisition of Chase Manhattan                                   46
                          NationsBank’s Acquisition of Boatmen’s Bancshares                           46
by Commenters             NationsBank’s Acquisition of BankAmerica                                    47
                          Bank One’s Acquisition of NBD First Chicago                                 47


Appendix IV                                                                                           48

Examples of FRB
Analysis of HMDA
Data in Response to
Public Concerns
Appendix V                                                                                            51
                          NBD First Chicago Bank Merger Shows Fairly Stable LMI                       51
BHC Mergers and             and Minority Lending
Lending in Minority       Fleet Merger Had Reduction in Lending in LMI and                            51
                            Minority Areas That Mirrored Its Reduction in the
and Low- and                Overall Market
Moderate-Income           Chase Manhattan Bank Merger Shows an Increase in LMI                        52
                            and Minority Lending
Areas


                          Page 28             GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
                        Contents




Appendix VI                                                                                          53

Comments From the
Federal Reserve Board
Appendix VII                                                                                         54

Comments From the
Office of the
Comptroller of the
Currency
Appendix VIII                                                                                        55

GAO Contacts and
Staff
Acknowledgments
Tables                  Table 1: Number of BHC Merger/Acquisition Cases                              12
                          Receiving CRA Protests
                        Table 2: The Distribution of CRA Performance Ratings                         13
                          for Large Banks Examined by OCC and FRB, 1995-98
                        Table 3: Market and Portfolio Shares for NBD/First                           24
                          Chicago Bank Holding Companies for Conventional,
                          Single-Family Home Purchase Loan Originations in the
                          Chicago MSA
                        Table 4: Market and Portfolio Shares for Fleet/Shawmut                       25
                          Bank Holding Company for Conventional, Single-
                          Family Home Purchase Loan Originations in the
                          Boston MSA
                        Table 5: Market and Portfolio Shares for Chemical/Chase                      25
                          Manhattan Bank Holding Companies for Conventional,
                          Single-Family Home Purchase Loan Originations in the
                          New York City MSA
                        Table II.1: NBD Corporation Premerger CRA Ratings                            37
                        Table II.2: First Chicago Corporation Premerger CRA                          37
                          Ratings
                        Table II.3: Fleet Financial Group Premerger CRA Ratings                      38
                        Table II.4: Shawmut National Corporation Premerger                           38
                          CRA Ratings



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Contents




Table II.5: Chemical Banking Corporation Premerger                           39
  CRA Ratings
Table II.6: Chase Manhattan Corporation Premerger CRA                        39
  Ratings
Table II.7: NationsBank Corporation Premerger CRA                            40
  Ratings
Table II.8: Boatmen’s Bancshares Premerger CRA                               41
  Ratings
Table II.9: NationsBank Corporation Premerger CRA                            43
  Ratings
Table II.10: BankAmerica Corporation Premerger CRA                           43
  Ratings
Table II.11: Bank One Corporation Premerger CRA                              44
  Ratings
Table II.12: First Chicago NBD Corporation Premerger                         45
  CRA Ratings
Table IV.1: HMDA Statistics Generated in Response to                         48
  Public Concerns Raised in NBD’s Acquisition of First
  Chicago
Table IV.2: HMDA Statistics Generated in Response to                         49
  Public Concerns Raised in Fleet’s Acquisition of
  Shawmut
Table IV.3: HMDA Statistics Generated in Response to                         49
  Public Concerns Raised in Chemical’s Acquisition of
  Chase
Table IV.4: HMDA Statistics Generated in Response to                         49
  Public Concerns Raised in NationsBank Acquisition of
  Boatmen’s
Table IV.5: HMDA Statistics Generated in Response to                         50
  Public Concerns Raised in NationsBank’s Acquisition
  of Bank America
Table IV.6: HMDA Statistics Generated in Response to                         50
  Public Concerns Raised in Bank One’s Acquisition of
  NBD First Chicago
Table V.1: Market and Portfolio Shares for First                             51
  Chicago/NBD Bank Holding Companies for All Single-
  Family Mortgage Loan Originations in the Chicago MSA
Table V.2: Market and Portfolio Shares for Fleet/Shawmut                     52
  Bank Holding Company for All Single-Family Mortgage
  Loan Originations in the Boston MSA




Page 30              GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
Contents




Table V.3: Market and Portfolio Shares for                                   52
  Chemical/Chase Manhattan Bank Holding Companies
  for All Single-Family Mortgage Loan Originations in the
  New York City MSA




Page 31              GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
Contents




Abbreviations

BHC         bank holding company
CRA         Community Reinvestment Act
DCCA        Division of Consumer and Community Affairs
FDIC        Federal Deposit Insurance Corporation
FFIEC       Federal Financial Institutions Examination Council
FRB         Federal Reserve Board
HMDA        Home Mortgage Disclosure Act of 1975
LMI         low- and moderate-income
MSA         metropolitan statistical area
OCC         Office of the Comptroller of the Currency
OTS         Office of Thrift Supervision


Page 32             GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
Page 33   GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
Appendix I

Scope and Methodology


                       To provide a more detailed description of our scope and methodology, this
                       appendix supplements our discussion contained in the letter of this report.

                       Our legal analysis included a review of the Bank Holding Company Act of
FRB’s Legal            1956 (BHC Act) and the Community Reinvestment Act of 1977 (CRA).
Responsibilities       Included in this review was our analysis of statutory amendments to the
                       BHC Act and court decisions addressing the convenience and needs factor
                       in the BHC Act.

                       To identify the principal CRA comments submitted to the Federal Reserve
FRB’s Process for      Board (FRB) on each of the six mergers, we reviewed summaries of
Reviewing BHC Merger   comments prepared by FRB’s Legal Division and the Division of Consumer
Applications           and Community Affairs (DCCA). The Legal Division wrote summaries for
                       four merger applications—Fleet Financial Group’s acquisition of Shawmut
                       National Corporation, Chemical Banking Corporation’s acquisition of
                       Chase Manhattan Corporation, NationsBank Corporation’s acquisition of
                       BankAmerica Corporation, and Bank One Corporation’s acquisition of
                       NBD First Chicago Corporation. To verify the completeness of the Legal
                       Division’s and DCCA’s summaries, we developed a data collection
                       instrument, took a sample of comment letters from Chemical’s acquisition
                       of Chase Manhattan and NationsBank’s acquisition of BankAmerica and
                       compared our data with the written summaries. From our sampling of
                       these comment letters, we determined that the Legal Division’s and
                       DCCA’s summaries of public comments were accurate. We focused our
                       attention on public comments addressing CRA performance measures. We
                       did not analyze comments raising employment, safety and soundness, or
                       competitive issues. We also did not analyze comments raising personal
                       complaints (e.g., “I did not receive a loan”) or managerial issues if they
                       were not directly tied to CRA performance. We did not assess the validity
                       of the public comments or verify the accuracy of data submitted with the
                       comments. We also did not verify the accuracy of the data FRB relied
                       upon in its response to public concerns.

                       To identify how FRB addressed the principal CRA comments for the six
                       mergers in our case study, we reviewed DCCA’s internal memorandums
                       and supporting documentation submitted to the Board of Governors and
                       the Board of Governors’ Orders approving the mergers. We also
                       interviewed officials from DCCA and the Legal Division and officials from
                       the Federal Reserve Bank of New York. Specifically for DCCA, we
                       interviewed the Manager of Applications in DCCA and each analyst who
                       was responsible for assessing the CRA performance of the six mergers.
                       We interviewed officials from Bank America Corporation, Bank One,
                       Chase Manhattan Corporation, and Fleet Financial Group. We also



                       Page 34               GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
                   Appendix I
                   Scope and Methodology




                   interviewed a number of community groups that submitted comments or
                   testified in public meetings on the bank holding company (BHC) merger
                   applications included in our case studies.

                   To identify how FRB used Home Mortgage Disclosure Act of 1975 (HMDA)
                   analysis to address public concerns, we specified the relevant geographic
                   areas at the state, county, or metropolitan statistical area level of
                   aggregation. We obtained selected reproductions of FRB analyses
                   conducted in response to the principal public concerns raised. FRB
                   officials told us that for some of the older mergers, they had not retained
                   computer-generated output or documentation of the computer programs
                   used to produce the output at the time of the merger application. FRB
                   officials told us that it would be difficult and costly to reconstruct and
                   reproduce the delineated areas for the bank subsidiaries of each BHC at
                   the time of the merger application. FRB officials told us that the statistical
                   tabulations they supplied to us would likely correspond closely to the
                   statistical results obtained when the merger application was being
                   processed at FRB.

                   We did not analyze FRB’s analysis of CRA small business loan file data to
                   address public concerns of insufficient small business lending.

                   To determine the premerger and postmerger mortgage lending in low- and
Premerger and      moderate-income (LMI) and minority communities for three mergers, we
Postmerger Home    used HMDA data. FRB provided us with “value-added” HMDA data for the
Mortgage Lending   years 1994-98; in these data, the individual HMDA loan files were merged
                   with census tract characteristics from the 1990 Census of Population and
                   Housing. We undertook steps to verify, in part, the accuracy of HMDA
                   data used in our premerger and postmerger HMDA analysis for the three
                   BHC mergers that we reviewed. We reviewed information on the process
                   used by the Federal Financial Institutions Examination Council’s (FFIEC)
                   member agencies for the identification and resolution of errors in the
                   HMDA information submitted by lenders. In November 1994, FRB
                   amended a regulation to require lenders to update the HMDA information
                   on their loan activity on a quarterly basis and to require most lenders to
                   submit their data to the supervisory agencies in a machine-readable form.
                   We discussed HMDA data with FRB and BHC officials. We identified that
                   HMDA data on home improvement loans were not consistently reported by
                   all HMDA reporters because they have the option to report equity lines of
                   credit as home improvement loans. We also obtained a list of the bank and
                   nonbank subsidiaries of the three BHCs who were HMDA filers in the
                   metropolitan statistical areas we were analyzing. We obtained the list of
                   HMDA reporters from DCCA as well as Bank One, Chase Manhattan, and



                   Page 35                 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
Appendix I
Scope and Methodology




Fleet. In cases where discrepancies were present, we conducted statistical
analyses and followed up with inquiries to DCCA and BHCs to reach
resolution.

In our mortgage lending analysis, we defined a census tract as LMI if
median family income for the census tract was less than 80 percent of
median family income for the metropolitan statistical area. Consistent with
definitions used in an analysis of trends in home purchase lending recently
conducted by FRB, we classified a census tract as a minority tract if 20
                                                                      1
percent or more of the residents were members of minority groups. This
definition of a minority tract therefore includes census tracts that can be
characterized as integrated as well as census tracts that have a greater
number of minority residents.

FRB provided us with 1998 HMDA data that allowed us to calculate
portfolio, but not market share, measures of lending performance for
                          nd
Chase Manhattan in the 2 year after the acquisition was completed.
During the time frame of our work, 1998 HMDA data required to calculate
market shares were not available.

HMDA data alone cannot reflect changes in market conditions that help
determine market outcomes. For example, mortgage interest rates change
over time, thus affecting the number of households among different
income groups that purchase a home or refinance existing mortgages. We
calculated portfolio and market shares for both the universe of single-
family mortgage originations and conventional home purchase mortgage
originations to see if the various statistical results were consistent with
one another. We also calculated the BHC’s market share in all census
tracts to create a benchmark that can be compared to changes in the
BHC’s market share in LMI and minority census tracts.

We tested the HMDA data we obtained from FRB for missing variable
values. We found that the variables on which we relied, such as HMDA
reporter, metropolitan statistical area, census tract number, census tract
family income, and census tract minority population, were not missing for
the years 1994 through 1998.




1
 Robert B. Avery, Raphael W. Bostic, Paul S. Calem, and Glenn B. Canner, “Trends in Home Purchase
Lending: Consolidation and the Community Reinvestment Act,” Federal Reserve Bulletin (Feb. 1999),
pp. 81-102.




Page 36                      GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
Appendix II

Premerger Bank Subsidiary CRA Performance
Ratings

                                           Tables II.1 through II.12 list the premerger CRA performance ratings for all
                                           bank subsidiaries owned by the applicant and the target institutions of the
                                           six BHC merger cases that we reviewed.

                                           NBD Corporation acquired First Chicago Corporation in 1995.
NBD’s Acquisition of
First Chicago

Table II.1: NBD Corporation Premerger CRA Ratings
                                                          Assets
NBD Corporation bank subsidiaries                    (in millions)     CRA ratings         Date                  Agency
NBD-Michigan, N.A,. Detroit, MI                         $31,000.0      Outstanding         March 31, 1993        OCC
NBD-Skokie, N.A., Skokie, IL                                 781.9     Satisfactory        March 31, 1995        0CC
NBD-Indianapolis, N.A., Indianapolis, IN                  9,986.1      Outstanding         April 20, 1993        0CC
NBD-Elkhart, Elkhart, IN                                     718.9     Satisfactory        June 1, 1993          FRB-Chicago
NBD-Florida, Venice, Fl                                       78.3     Satisfactory        October 20, 1994      OTS
NBD-Ohio, Columbus, OH                                       706.4     Outstanding         May 16, 1994          OCC
NBD-Wheaton, Wheaton, IL                                  5,719.0      Outstanding         October 29, 1993      OCC
                                           Source: Federal Reserve Board.




Table II.2: First Chicago Corporation Premerger CRA Ratings
                                                        Assets
First Chicago Corporation bank subsidiaries        (in billions)       CRA ratings         Date                  Agency
First National Bank of Chicago,                            $49.3       Satisfactory        November 5, 1993      OCC
 Chicago, IL
American National Bank and Trust Co.                         6.2       Satisfactory        April 11, 1994        OCC
 Chicago, IL
FCC National Bank, Wilmington, DE                            5.8       Outstanding         April 11, 1994        OCC
                                           Source: Federal Reserve Board.




                                           Page 37                    GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
                                          Appendix II
                                          Premerger Bank Subsidiary CRA Performance Ratings




                                          Fleet Financial Group acquired Shawmut in 1995.
Fleet’s Acquisition of
Shawmut

Table II.3: Fleet Financial Group Premerger CRA Ratings
                                                            Assets
Fleet Financial Group bank subsidiaries                (in billions)       CRA ratings         Date                     Agency
Fleet Bank, Albany, NY                                         $14.8       Satisfactory        January 10, 1994         FRB-New York
Fleet Bank, Melville, NY                                         N/A       Outstanding         May 18, 1992             FRB-New York
Fleet National Bank, Providence, RI                             10.1       Satisfactory        March 31, 1995           OCC
Fleet Bank of Massachusetts, N.A.,                              10.8       Satisfactory        March 31, 1995           OCC
 Boston MA
Fleet Bank., N.A., Hartford, CT                                 6.9        Outstanding         March 31, 1993           OCC

Fleet Bank of Maine, Portland, ME                               3.1        Outstanding         August 8, 1994           FRB-Boston
Fleet Bank-NH, Nashua, NH                                       1.9        Outstanding         August 8, 1994           FRB-Boston
                                          Source: Federal Reserve Board.




Table II.4: Shawmut National Corporation Premerger CRA Ratings
Shawmut National Corporation bank                        Assets
subsidiaries                                        (in billions)          CRA ratings         Date                     Agency
Shawmut Bank, N.A., Boston, MA                              $14.4          Satisfactory        December 31, 1993        OCC
Shawmut Bank-Connecticut, N.A.,                              18.7          Satisfactory        December 31, 1993        OCC
 Hartford, CT
Shawmut Bank-NH, Manchester, NH                               1.8          Satisfactory        April 11, 1994           FDIC
Shawmut Bank-New York, N.A.,                                  1.7          Not examined        N/A                      N/A
                 a
 Schenectady, NY
                                  b
Shawmut Bank, FSB, Boca Raton, FL                             0.2          Not examined        N/A                      N/A
                                          a
                                          Shawmut Bank-New York was formed in June 1995 from the acquisition of branches of Northeast
                                          Savings, F.A., Hartford, CT (Satisfactory, Sept. 28, 1992).
                                          b
                                          Shawmut Bank, FSB, was formed through the acquisition of branches from the Resolution Trust
                                          Corporation in July 1994.
                                          Source: Federal Reserve Board.




                                          Page 38                      GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
                                          Appendix II
                                          Premerger Bank Subsidiary CRA Performance Ratings




                                          Chemical Banking Corporation acquired Chase Manhattan in 1996.
Chemical’s Acquisition
of Chase Manhattan

Table II.5: Chemical Banking Corporation Premerger CRA Ratings
Chemical Banking Corporation bank                         Assets
subsidiaries                                        (in millions)          CRA ratings    Date                   Agency
Chemical Bank, New York, NY                             $153,100           Outstanding    March 13, 1995         FRB-New York
Chemical Bank, N.A., Jericho, NY                            4,342          Satisfactory   September 30, 1994     OCC
Texas Commerce Bank, N.A.,                                19,649           Outstanding    September 14, 1994     OCC
 Houston, TX
Texas Commerce Bank--San Angelo,                              201          Satisfactory   September 15, 1994     OCC
 San Angelo, TX
Chemical Bank, New Jersey, N.A., East                         188          Satisfactory   August 31, 1993        OCC
 Brunswick, NJ
Princeton Bank & Trust Co, N.A., East                         N/A          Satisfactory   August 31, 1993        OCC
 Brunswick, NJ
Chemical Bank, FSB, Palm Beach, FL                            162          Satisfactory   March 6, 1995          OTS
                                          Source: Federal Reserve Board.




Table II.6: Chase Manhattan Corporation Premerger CRA Ratings
Chase Manhattan Corporation bank                         Assets
subsidiaries                                       (in millions)           CRA ratings    Date                   Agency
The Chase Manhattan Bank, N.A.,                         $97,900            Satisfactory   October 28, 1993       OCC
 New York, NY
The Chase Manhattan Bank (USA)                             9,616           Outstanding    August 30, 1994        FDIC
Wilmington, DE
The Chase Manhattan Bank of Florida,                         409           Satisfactory   October 6, 1993        OCC
 N.A., Tampa, FL
The Chase Manhattan Bank of Maryland,                        646           Satisfactory   February 6, 1995       FRB-Richmond
 Baltimore, MD
                                          Source: Federal Reserve Board.




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                                          Premerger Bank Subsidiary CRA Performance Ratings




                                          NationsBank Corporation acquired Boatmen’s Bancshares in 1996.
NationsBank’s
Acquisition of
Boatmen’s Bancshares

Table II.7: NationsBank Corporation Premerger CRA Ratings
                                                        Assets
Nationsbank Corporation subsidiaries               (in billions)           CRA ratings            Date                       Agency
                                          a
NationsBank N.A. Carolinas, Charlotte, NC                  $70.2           Outstanding            July 21, 1995              OCC
NationsBank, N.A. (South), Atlanta, GA                      49.5           Outstanding            July 21, 1995              OCC
NationsBank of Texas, N.A., Dallas, TX                      41.7           Outstanding            July 21, 1995              OCC
NationsBank of Delaware, N.A., Dover, DE                     6.6           Satisfactory           July 21, 1995              OCC
NationsBank of Tennessee, N.A., Nashville,                   4.9           Outstanding            July 21, 1995              OCC
  TN
NationsBank of Kentucky, N.A., Hopkinsville,                 0.2           Satisfactory           July 21, 1995              OCC
  KY
Sun World, N.A., El Paso, TX                                 0.1           Not examined           N/A                        N/A
                                          a
                                           Since the 1995 examinations, NationsBank merged several banks. NationsBank of Florida, N.A.,
                                          Tampa, Fl, which merged into the Atlanta, GA, subsidiary, received a CRA rating of outstanding (July
                                          1995). NationsBank, N.A., Richmond, VA, merged into the Charlotte, NC, bank and received a CRA
                                          rating of outstanding (July 1995).
                                          Source: Federal Reserve Board.




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                                         Premerger Bank Subsidiary CRA Performance Ratings




Table II.8: Boatmen’s Bancshares Premerger CRA Ratings
                                                      Assets
Boatmen’s Bancshares subsidiaries                (in billions)       CRA ratings       Date                  Agency
Boatmens NB of Batesville, Batesville, AR             $160. 7        Outstanding       April 29, 1996        OCC
Boatmens NB of North Central AR, Bull                    208.5       Outstanding       April 1, 1996         OCC
 Shoals, AR
Boatmens NB of South AR, Camden, AR                      115.4       Outstanding       April 29, 1996        OCC
Boatmens NB of Conway, Conway, AR                        198.7       Outstanding       April 29, 1996        OCC
Boatmens NB of North West AR, Fayetteville,              494.7       Outstanding       May 6, 1996           OCC
 AR
Superior Federal Bank, FSB, Fort Smith, AR            1,229.2        Outstanding       August 8, 1994        OTS
Boatmens NB of Hot Springs, Hot Springs, AR              304.9       Outstanding       April 15, 1996        OCC
Boatmens BK of Northeast AR, Jonesboro,                  257.7       Satisfactory      February 13, 1995     FDIC
 AR
Boatmens NB of AR, Little Rock, AR                    1,592.5        Outstanding       April 8, 1996         OCC
Boatmens NB of Newark, Newark, AR                         12.5       Outstanding       May 6, 1996           OCC
Boatmens NB of Pine Bluff, Pine Bluff, AR                246.7       Outstanding       April 29, 1996        OCC
Boatmens NB of Russellville, Russellville, AR            164.0       Outstanding       April 22, 1996        OCC
Boatmens Bank of Franklin County, Benton, IL             166.1       Satisfactory      November 28, 1994     FDIC
Boatmens NB Charleston, Charleston, IL                   112.8       Satisfactory      September 27, 1994    OCC
Boatmens NB of Central IL, Hillsboro, IL                 109.2       Satisfactory      September 12, 1994    OCC
Boatmens Bank of S. Central IL, Mount                    236.4       Outstanding       January 3, 1994       FDIC
 Vernon, IL
Boatmens Bank of Quincy, Quincy, IL                      193.7       Outstanding       February 4, 1994      FDIC
Boatmens Bank of Iowa, NA, Des Moines, IA                688.7       Outstanding       September 6, 1994     OCC
Boatmens BK Fort Dodge, Fort Dodge, IA                   104.5       Outstanding       April 24, 1995        FDIC
Boatmens Bank North Iowa, Mason City, IA                 258.7       Outstanding       July 15, 1996         FDIC
Boatmens NB Northwest IA, Spencer, IA                    115.9       Satisfactory      July 25, 1994         OCC
Bank IV NA, Wichita, KS                               4,754.7        Outstanding       March13, 1995         OCC
Boatmens NB of Boonville, Boonville, MO                   51.1       Satisfactory      October 3, 1994       OCC
Boatmens Osage Bank, Butler, MO                          113.3       Outstanding       December 30, 1994     FDIC
Boatmens NB of Cape Girardeau, Cape                      423.5       Satisfactory      April 4, 1994         OCC
 Girardeau, MO
Boatmens Bank of Southwest MO, Carthage,                 237.4       Outstanding       September 5, 1995     FRB-Kansas
 MO                                                                                                          City
Boatmens Bank of Mid MO, Columbia, MO                    288.4       Outstanding       December 12, 1994     FDIC
Boatmens First NB of Kansas, Kansas City,             4,428.5        Outstanding       January 18, 1994      OCC
 MO
Boatmens Bank, Kennett, MO                               125.2       Satisfactory      April 1, 1996         FDIC
Boatmens NB Lebanon, Lebanon, MO                         100.1       Satisfactory      August 15, 1994       OCC
Boatmens River Valley Bank, Lexington, MO                 74.1       Outstanding       January 19, 1996      FDIC
Boatmens Bank of Marshall, Marshall, MO                   69.7       Outstanding       August 16, 1994       FDIC
Boatmens Bank of Pulaski County, Richland,                46.9       Outstanding       September 5, 1995     FDIC
 MO
Boatmens Bank, Rolla, MO                                  99.1       Outstanding       August 8, 1994        FDIC
Boatmens NB of St. Louis, St. Louis                  11,482.4        Outstanding       February 26, 1996     OCC
Boatmens Bank of Southern MO, Springfield,            1,192.2        Outstanding       October 18, 1995      FDIC
 MO
Boatmens Bank of Troy, Troy, MO                           62.6       Satisfactory      April 3, 1995         FDIC




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                                             Premerger Bank Subsidiary CRA Performance Ratings




                                                             Assets
Boatmen’s Bancshares subsidiaries                       (in billions)         CRA ratings     Date                   Agency
Boatmens Bank, Vandalia, MO                                       41.1        Satisfactory    January 10, 1995       FRB-St. Louis
Boatmens First NB, West Plains, MO                               152.5        Satisfactory    September 12, 1994     OCC
Boatmens Credit Card Bank, Albuquerque,                          580.9        Satisfactory    August 19, 1994        FDIC
 NM
Sunwest Bank of Albuquerque, Albuquerque,                     2,217.5         Outstanding     April 4, 1994          OCC
 NM
Sunwest Bank of Clovis, NA, Clovis, NM                          169.5         Outstanding     March 31, 1994         OCC
Sunwest Bank of Rio Arriba, NA, Espanola,                        90.7         Satisfactory    March 31, 1994         OCC
 NM
Sunwest Bank of Farmington, Farmington, NM                       79.1         Satisfactory    March 8, 1996          FDIC
Sunwest Bank of Gallup, Gallup, NM                              176.5         Satisfactory    January 12, 1996       FDIC
Sunwest Bank of Hobbs, Hobbs, NM                                 78.1         Satisfactory    April 11, 1994         OCC
Sunwest Bank of Las Cruces, NA,                                  99.6         Satisfactory    April 18, 1994         OCC
 Las Cruces, NM
Sunwest Bank of Raton, NA, Raton, NM                             84.4         Outstanding     March 31, 1994         OCC
Sunwest Bank of Roswell, NA, Roswell, NM                        165.3         Satisfactory    March 31, 1994         OCC
Sunwest Bank of Santa Fe, Santa Fe, NM                          283.2         Outstanding     November 25, 1994      FDIC
Sunwest Bank, Silver City, NM                                   107.4         Outstanding     April 24, 1995         FRB-Dallas
Boatmens NB of Oklahoma, Tulsa, OK                            3,961.4         Satisfactory    September 12, 1995     OCC
Boatmens Bank of Tennessee, Memphis, TN                         942.7         Outstanding     December 12, 1994      FDIC
Boatmens First NB, Amarillo, TX                               1,586.1         Satisfactory    May 16, 1994           OCC
Boatmens NB Austin, Austin, TX                                  120.9         Satisfactory    October 10, 1994       OCC
Sunwest Bank, El Paso, TX                                       548.8         Outstanding     July 8, 1996           FDIC
                                             Source: Federal Reserve Board.




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                                          Premerger Bank Subsidiary CRA Performance Ratings




                                          NationsBank Corporation acquired BankAmerica in 1998.
NationsBank’s
Acquisition of
BankAmerica

Table II.9: NationsBank Corporation Premerger CRA Ratings
NationsBank Corporation bank                             Assets
subsidiaries                                        (in billions)           CRA ratings            Date                        Agency
                                              a
NationsBank, N.A. (Carolinas), Charlotte, NC              $216.4            Outstanding            July 21, 1995               OCC
NationsBank of Tennessee, N.A., Nashville,                    6.0           Outstanding            July 21, 1995               OCC
 TN
NationsBank of Kentucky, N.A., Hopkinsville,                  0.2           Satisfactory           July 21, 1995               OCC
 KY
NationsBank of Delaware, N.A., Dover, DE                      6.7           Satisfactory           July 21, 1995               OCC
NationsBank, N.A. (NationsBank-Glynn Co.),                    0.3           Outstanding            April 22, 1996              OTS
 Brunswick, GA
Sunwest Bank of El Paso, TX                                   0.6           Outstanding            July 8, 1996                FDIC
Boatmen's National Bank of Austin, Austin, TX                 0.1           Satisfactory           December 31, 1994           OCC
Barnett Bank, N.A. (Barnett), Jacksonville, FL               46.3           Outstanding            December 31, 1996           OCC
Community Bank of the Islands, Sanibel, FL                    0.1           Outstanding            January 31, 1996            FRB-Atlanta
Superior Federal Bank, FSB, Ft. Smith, AR                     1.3           Outstanding            August 8, 1994              OTS
                                          a
                                           At the time of the BHC merger application review, the NationsBank, N.A., operated in 14 states and
                                          DC; it included all of NationsBank's East Coast banks (except banks in Tennessee, Kentucky, and the
                                          Barnett Banks) and all former Boatmen's banks. NationsBank--TX merged into NationsBank, N.A., on
                                          5/6/98 as the result of a court decision allowing the merger of Texas banks into banks based in other
                                          states; Boatmen's-TX and Sunwest-TX were also merged into the NC bank.
                                          Source: Federal Reserve Board.




Table II.10: BankAmerica Corporation Premerger CRA Ratings
BankAmerica Corporation bank                            Assets
subsidiaries                                       (in billions)            CRA ratings            Date                        Agency
Bank of America National Trust and SA,                   $240.4             Outstanding            September 30, 1997          OCC
 San Francisco, CA
Bank of America, N.A., Phoenix, AZ                           6.7            Outstanding            October 31, 1996            OCC
Bank of America Texas, N.A., Irving, TX                      5.3            Outstanding            October 31, 1996            OCC
                                    a
Bank of America, FSB, Portland, OR                          15.8            Outstanding            June 9, 1997                OTS
Bank of America Community Development                        0.4            Outstanding            August 27, 1997             FDIC
                         b
 Bank, Walnut Creek, CA
                                          a
                                          All deposit-taking branches were sold (Hawaii, Dec. 5, 1997, and in-store branches in the Chicago
                                          MSA, Jan. 31,1998). Other divisions included BankAmerica's mortgage company and a community
                                          development division, which generally complemented the activities of the Bank of America
                                          Community Development Bank and operated in states other than California.
                                          b
                                           The bank was considered a leader for community development efforts for all BankAmerica banking
                                          units. Its activities focused on Small Business Administration lending, affordable housing lending, and
                                          community development services; it operated mainly in California.

                                          Source: Federal Reserve Board.




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                                          Appendix II
                                          Premerger Bank Subsidiary CRA Performance Ratings




                                          Bank One Corporation acquired NBD First Chicago in 1998.
Bank One’s Acquisition
of NBD First Chicago

Table II.11: Bank One Corporation Premerger CRA Ratings
Bank One Corporation bank                                Assets
subsidiaries                                       (in millions)              CRA ratings         Date                       Agency
                              a
Bank One NA, Columbus, OH                               $24,607               Outstanding        January 21, 1995           OCC
Bank One Texas, NA, Dallas, TX                           24,509               Satisfactory       October 31, 1997           OCC
Bank One Arizona, NA, Phoenix, AZ.                       14,678               Satisfactory       October 28, 1996           OCC
                                       a                                                                                        c
Bank One Wisconsin, Milwaukee, WI                          9,007              Satisfactory       November 25, 1995          OCC
                                                                                                                                d
First USA Bank, Wilmington, DE                             9,002              Satisfactory       August 19, 1996            FDIC
                                         a
Bank One Indiana, NA, Indianapolis, IN                     8,323              Outstanding        February 21, 1995          OCC
Bank One LA, NA, Baton Rouge, LA                           6,003              Satisfactory       September 19, 1996         OCC
                                                                                                                   b
Bank One Kentucky, NA, Louisville, KY                      5,456              Outstanding        November 7, 1994           OCC
Bank One Oklahoma, NA, Oklahoma City,                      3,890              Satisfactory       April 22, 1996             OCC
 OK
Bank One Illinois, NA, Springfield, IL                     3,535              Outstanding        December 21, 1994          OCC
Bank One Colorado, NA, Denver, CO                          2,956              Outstanding        January 13, 1997           OCC
Bank One West VA, NA, Huntington, WV                       2,397              Satisfactory       June 30, 1997              OCC
Bank One Utah, NA, Salt Lake City, UT                      1,025              Satisfactory       October 31, 1997           OCC
                                           e
Bank One Trust Co., NA, Columbus, OH                         581              Not examined       N/A                        OCC
Bank One Wheeling, Steubenville, NA,                         453              Satisfactory       April 15, 1996             OCC
 Wheeling, WV
                                          a
                                           FRB staff noted that subsequent to the 1995 CRA examination of Bank One's Columbus, OH, bank
                                          subsidiary, it merged several other Bank One Ohio bank subsidiaries into the Columbus bank.
                                          Similarly, Bank One merged its other Indiana bank subsidiaries into the Indianapolis, IN, bank after
                                          that bank's 1995 CRA examination. In Wisconsin, Bank One merged several of its subsidiaries into
                                          the Milwaukee bank subsequent to that bank subsidiary's 1995 CRA examination. Also, in Illinois,
                                          Bank One merged several subsidiaries into the Springfield bank, which was examined in late 1994.
                                          Therefore, these 1994/1995 ratings do not represent examinations of Bank One's activities throughout
                                          these three states. FRB staff noted that all Bank One's banks that were merged out of existence had
                                          at least satisfactory CRA ratings.
                                          b
                                          At the time of the BHC merger application review, the primary bank regulator was conducting a CRA
                                          examination at the bank.
                                          c
                                              Changed to an OCC charter in April 1998.
                                          d
                                              Changed to a FDIC charter in October 1996.
                                          e
                                              The subsidiary was not subject to CRA.
                                          Source: Federal Reserve Board.




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                                           Appendix II
                                           Premerger Bank Subsidiary CRA Performance Ratings




Table II.12: First Chicago NBD Corporation Premerger CRA Ratings
First Chicago NBD Corporation bank                         Assets
subsidiaries                                          (in millions)         CRA ratings          Date                       Agency
First NB of Chicago, Chicago, IL                         $58,138            Satisfactory         November 3, 1997           OCC
                                                                                                               a
NBD Bank, Detroit, MI                                     22,138            Outstanding          May 28, 1996               FRB-Chicago
                                                                                                               a
FCC National Bank, Wilmington, DE                          9,404            Outstanding          May 17, 1995               OCC
NBD Bank, NA, Indianapolis, IN                             9,268            Outstanding          March 11, 1996             OCC
                                                                                                                 a
American NB & Trust, Chicago, IL                           9,260            Satisfactory         January 9, 1995            OCC
NBD Bank, Elkhart, IN                                         713           Outstanding          July 26, 1998              FDIC
NBD Bank, Venice FL                                           129           Satisfactory         August 12, 1996            FDIC
                                           a
                                           At the time of the BHC merger application review, the primary bank regulator was conducting a CRA
                                           examination at the bank.
                                           Source: Federal Reserve Board.




                                           Page 45                     GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
Appendix III

Discussion of Principal CRA Concerns Raised
by Commenters

                         FRB received both supportive and opposing comments for all six mergers.
                         This appendix provides a discussion of the CRA concerns raised in each
                         merger. Our discussion includes the financial institutions, CRA comments,
                         and geographic areas raised in the concerns.

                         Commenters raised concerns that NBD had inadequate lending in LMI
NBD’s Acquisition of     areas in the Detroit MSA, where the lead bank subsidiary was located.
First Chicago            Similar concerns were also raised regarding the inadequacy of First
                         Chicago’s lending in the Lake County area of Chicago.

                         Commenters also alleged that NBD redlined many LMI Detroit
                         communities, as evidenced by the lead bank subsidiary’s lack of branch
                         presence and minimal marketing of credit products in these areas.

                         Commenters expressed concerns about inadequate lending by Fleet or its
Fleet’s Acquisition of   subsidiaries in minority census tracts in the 13 MSAs in New York State.
Shawmut                  Commenters alleged that the level of mortgage applications that Fleet
                         received in each MSA was not consistent with the demographics of each
                         MSA, and that the application denial rates evidenced disparate lending to
                         minorities and those in LMI census tracts.

                         Concerns were also raised regarding potential branch closures that would
                         result in decreased banking services to LMI neighborhoods.

                         Commenters raised CRA concerns for both Chemical and Chase
Chemical’s Acquisition   Manhattan. Concerns were expressed about Chemical’s and Chase’s
of Chase Manhattan       lending in all states where the banks had a banking presence. Commenters
                         also expressed concern that Chase had inadequate mortgage lending in
                         LMI communities in a broad cross-section of cities, including Chicago, Los
                         Angeles, Atlanta, Detroit, and Dallas. Commenters expressed concern that
                         Chemical lacked home mortgage lending in LMI census tracts in New York,
                         New Jersey, Delaware, Florida, and Texas.

                         Concerns were also raised regarding branch closures. In particular, a
                         number of commenters expressed concern with the impact of Chemical’s
                         announced branch closures in LMI areas of New York City.

                         Commenters expressed concern that NationsBank had inadequate
NationsBank’s            mortgage and business lending to minorities and possible branch closings
Acquisition of           in Travis County, TX.
Boatmen’s Bancshares



                         Page 46              GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
                         Appendix III
                         Discussion of Principal CRA Concerns Raised by Commenters




                         Similar to the previous NationsBank merger, numerous commenters
NationsBank’s            criticized the lending records of one or both banks in a number of
Acquisition of           geographical areas. Commenters were concerned that one or both of the
BankAmerica              banks did not adequately lend to LMI individuals and areas. Concerns
                         were also raised regarding NationsBank’s small business and rural lending,
                         and branch closings. One commenter asserted that the acquisition of
                         BankAmerica would result in branch closings and reductions in banking
                         services to LMI communities.

                         Commenters criticized both BHCs’ home mortgage lending and small
Bank One’s Acquisition   business lending in serving the needs of minority borrowers and LMI and
of NBD First Chicago     rural areas. Some commenters’ concerns were related to Bank One’s April
                         1998 decision to modify its mortgage lending strategy, which they
                         interpreted as the bank’s plan to exit the mortgage lending business.
                         Commenters feared that such a strategy would have the impact of reduced
                         access to mortgage credit for certain individuals.

                         Commenters also expressed concern about branch closings, including the
                         concern that branch closings would reduce the availability of banking
                         services to individuals in LMI and minority neighborhoods. In addition,
                         commenters expressed concern about Bank One’s refusal to enter into
                         community reinvestment agreements similar to the agreements entered
                         into by First Chicago in Detroit and Chicago.




                         Page 47                  GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
Appendix IV

Examples of FRB Analysis of HMDA Data in
Response to Public Concerns

                                        For each merger application, DCCA produced statistical tabulations on
                                        each geographic area where home mortgage lending concerns were raised.
                                        Tables IV.1 through IV.6 present examples of FRB analysis conducted with
                                        HMDA data that were performed in response to public concerns raised in
                                        each of the six bank holding company mergers included in our case study.
                                        The examples, which represent a small subset of DCCA’s tabulations, are
                                        presented in six tables representing (1) NBD’s acquisition of First Chicago
                                        in 1995, (2) Fleet’s acquisition of Shawmut in 1995, (3) Chemical’s
                                        acquisition of Chase in 1996, (4) NationsBank’s acquisition of Boatmen’s in
                                        1997, (5) NationsBank’s acquisition of BankAmerica in 1998, and (6) Bank
                                        One’s acquisition of NBD First Chicago in 1998.

                                        Each table includes statistics generated by FRB analysts for census tracts
                                        classified as LMI in response to public comments stating that such lending
                                        was insufficient. Each table also includes statistics generated for minority
                                        applicants in the MSA or region. We reported FRB’s analysis for the
                                        minority group accounting for the highest percentage of mortgage
                                        originations in the geographic area. When analyses were performed for a
                                        number of geographic areas covering one or more parties to the merger,
                                        we reported FRB’s analysis for the area and merger partner we considered
                                        to be most helpful for illustrating FRB’s process. For example, in NBD’s
                                        acquisition of First Chicago, we reported FRB analysis for NBD in the
                                        Detroit MSA. FRB also conducted an analysis for First Chicago in the
                                        Chicago MSA and in Lake County, IL, in response to public comments on
                                        First Chicago’s lending in those geographic areas.

Table IV.1: HMDA Statistics Generated
in Response to Public Concerns Raised   NBD-Detroit MSA                                                 1993             1994
in NBD’s Acquisition of First Chicago   Percentage of NBD mortgage applications                         8.3%            13.7%
                                         from LMI tracts
                                        Percentage of NBD mortgage applications                           6.6             11.7
                                         from African-American applicants
                                        Percentage of NBD mortgage originations                           7.6             16.3
                                         from LMI tracts
                                        Percentage of all institution mortgage                            6.9             12.4
                                         originations from LMI tracts
                                        Percentage of NBD mortgage originations                           5.6             11.2
                                         to African-American applicants
                                        Percentage of all institution mortgage                            5.0             10.3
                                         originations to African-American applicants
                                        Source: Federal Reserve Board.




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                                        Appendix IV
                                        Examples of FRB Analysis of HMDA Data in Response to Public Concerns




Table IV.2: HMDA Statistics Generated
in Response to Public Concerns Raised   Fleet-Albany                                                    1993             1994
in Fleet’s Acquisition of Shawmut       Percentage of Fleet mortgage applications                      16.6%            19.1%
                                         from LMI tracts
                                        Percentage of Fleet mortgage applications                         1.4              3.2
                                         from African-American applicants
                                        Percentage of Fleet mortgage originations                        15.2             17.8
                                         from LMI tracts
                                        Percentage of all institution mortgage                           12.4             13.4
                                         originations from LMI tracts
                                        Percentage of Fleet mortgage originations                         1.4              3.1
                                         to African-American applicants
                                        Percentage of all institution mortgage                            1.7              1.9
                                         originations to African-American applicants
                                        Source: Federal Reserve Board.



Table IV.3: HMDA Statistics Generated
in Response to Public Concerns Raised   Chase-New York MSA                                              1993             1994
in Chemical’s Acquisition of Chase      Percentage of Chase mortgage applications                       8.5%             9.6%
                                         from LMI Tracts
                                        Percentage of Chase mortgage applications                        12.3             17.7
                                         from African-American applicants
                                        Percentage of Chase mortgage originations                         7.7              9.3
                                         from LMI tracts
                                        Percentage of all institution mortgage                            7.8              9.8
                                         originations from LMI Tracts
                                        Percentage of Chase mortgage originations                        11.3             15.7
                                         to African-American applicants
                                        Percentage of all institution mortgage                            9.1             13.7
                                         originations to African-American applicants
                                        Source: Federal Reserve Board.



Table IV.4: HMDA Statistics Generated
in Response to Public Concerns Raised   NationsBank-Travis County, TX                                   1994             1995
in NationsBank Acquisition of           Percentage of NationsBank mortgage                             24.3%            27.0%
Boatmen’s                                Applications from LMI tracts
                                        Percentage of NationsBank mortgage                               13.2             16.2
                                         applications from Hispanic applicants
                                        Percentage of NationsBank mortgage                               22.0             22.8
                                         Originations from LMI tracts
                                        Percentage of all institution mortgage                           15.5             16.8
                                         Originations from LMI tracts
                                        Percentage of NationsBank mortgage                               10.2             13.3
                                         originations to Hispanic applicants
                                        Percentage of all institution mortgage                            8.7             11.1
                                         originations to Hispanic applicants
                                        Source: Federal Reserve Board.




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                                         Appendix IV
                                         Examples of FRB Analysis of HMDA Data in Response to Public Concerns




Table IV.5: HMDA Statistics Generated
in Response to Public Concerns Raised    NationsBank-TX                                         1995          1996        1997
in NationsBank’s Acquisition of Bank     Percentage of NationsBank mortgage                    26.1%         23.9%       22.0%
America                                   applications from LMI tracts
                                         Percentage of NationsBank mortgage                      18.6           18.3       18.4
                                          applications from Hispanic applicants
                                         Percentage of NationsBank mortgage                      21.1           18.4       15.7
                                          originations from LMI tracts
                                         Percentage of all institution mortgage                  14.7           14.1       14.2
                                          originations from LMI tracts
                                         Percentage of NationsBank mortgage                      15.7           14.3       13.9
                                          originations to Hispanic applicants
                                         Percentage of all institution mortgage                  15.5           15.2       15.1
                                          originations to Hispanic applicants
                                         Source: Federal Reserve Board.



Table IV.6: HMDA Statistics Generated
in Response to Public Concerns Raised    Bank One-Indianapolis MSA                              1995          1996        1997
in Bank One’s Acquisition of NBD First   Percentage of Bank One mortgage applications          28.3%         24.4%       26.8%
Chicago                                   from LMI tracts
                                         Percentage of Bank One mortgage applications            14.4           13.8       15.2
                                          from African-American applicants
                                         Percentage of Bank One mortgage originations            23.0           19.1       21.6
                                          from LMI tracts
                                         Percentage of all institution mortgage                  16.6           16.1       16.9
                                          originations from LMI tracts
                                         Percentage of Bank One mortgage originations            10.6           10.2       11.2
                                          to African-American applicants
                                         Percentage of all institution mortgage                   7.7            7.7        7.7
                                          originations to African-American applicants
                                         Source: Federal Reserve Board.




                                         Page 50                    GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
Appendix V

BHC Mergers and Lending in Minority and
Low- and Moderate-Income Areas

                                          This appendix contains our statistical results using a broader universe of
                                          all single-family home mortgage lending. We define a single-family
                                          mortgage loan as a home purchase, refinancing, or home improvement
                                          loan used to finance an one- to four-unit residential structure. Statistical
                                          results using our narrower universe of conventional, single-family home
                                          purchase loan originations are contained in the body of the letter.

                                          Our broader universe of home mortgage lending includes home
                                          improvement loans that are not consistently reported by all HMDA
                                          reporters. HMDA reporters have the option to report equity lines of credit
                                          as home improvement loans. We also include refinancing loans that are
                                          more sensitive to interest rate changes as compared to home purchase
                                          loans. Our broader universe also includes federally insured loans.

                                          NBD First Chicago Bank’s market and portfolio share measures for all
NBD First Chicago                         single-family loan originations are presented in table V.1. The market share
Bank Merger Shows                         percentages for NBD First Chicago were fairly stable from 1994 to 1997 for
Fairly Stable LMI and                     both LMI and minority areas.
Minority Lending

Table V.1: Market and Portfolio Shares for First Chicago/NBD Bank Holding Companies for All Single-Family Mortgage Loan
Originations in the Chicago MSA
                                                                         NBD/First Chicago                     NBD
Market or portfolio share                                               1994             1995         1996             1997
Market share of loan origination for Chicago MSA                        4.4%             5.5%         4.9%             5.0%
Market share of census tracts that were:
  LMI                                                                     3.9              4.1          3.7              4.0
  Minority                                                                4.0              4.5          4.0              4.3
Portfolio share of census tracts that were:
  LMI                                                                    12.5             11.7         11.5             13.2
  Minority                                                               27.7             25.2         25.0             27.9
                                          Source: HMDA data.


                                          As stated in the letter of this report, Fleet’s 1995 acquisition of Shawmut
Fleet Merger Had                          National Bank is associated with a reduction in conventional, single-family
Reduction in Lending                      home purchase mortgage lending to LMI and minority census tracts that
in LMI and Minority                       mirrored Fleet’s overall reduction in mortgage lending for the Boston
                                          metropolitan statistical area. According to Fleet Financial Group officials,
Areas That Mirrored                       over the period of 1994 to 1997, the Boston MSA experienced a significant
Its Reduction in the                      influx of mortgage lenders that resulted in competitive pressures and a
Overall Market                            subsequent reduction in residential mortgage lending among existing
                                          lenders in that market. A generally consistent pattern is found in table V.2
                                          for all single-family loan originations by Fleet in the Boston metropolitan



                                          Page 51                 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
                                         Appendix V
                                         BHC Mergers and Lending in Minority and Low- and Moderate-Income Areas




                                         statistical area. Market share declines in LMI and minority census tracts
                                         generally mirrored declines for all census tracts. The market share
                                         declines in LMI and minority census tracts were accompanied by declines
                                         in respective portfolio share measures.


Table V.2: Market and Portfolio Shares for Fleet/Shawmut Bank Holding Company for All Single-Family Mortgage Loan
Originations in the Boston MSA
                                                                          Fleet/Shawmut                      Fleet
Market or portfolio share                                              1994             1995          1996                            1997
Market share of loan origination for Boston MSA                        8.1%            10.2%          6.9%                            5.7%
Market share of census tracts that were:
  LMI                                                                   17.3             19.1          11.6                             9.1
  Minority                                                              21.4             22.4          12.4                             9.4
Portfolio share of census tracts that were:
  LMI                                                                   25.3             25.0          22.5                            21.6
  Minority                                                              18.8             18.2          14.8                            13.5
                                         Source: HMDA data.


                                         Chase Manhattan Bank’s market and portfolio share statistics for all single-
Chase Manhattan Bank                     family loan originations in the New York City metropolitan statistical area
Merger Shows an                          are presented in table V.3. The statistics are comparable to those for
Increase in LMI and                      conventional home purchase loans discussed in the letter of this report.
                                         The market and portfolio shares of lending increased in LMI census tracts.
Minority Lending                         Market share in LMI census tracts increased between 1995 and 1997 from
                                         6.8 percent to 9.2 percent. On balance, the statistics indicated that the
                                         consolidated BHC did not reduce access to credit in LMI and minority
                                         census tracts after FRB approved its BHC application in 1996.


Table V.3: Market and Portfolio Shares for Chemical/Chase Manhattan Bank Holding Companies for All Single-Family Mortgage
Loan Originations in the New York City MSA
                                                                        Chemical/Chase                      Chase
Market or portfolio share                                             1995             1996          1997            1998
                                                                                                                          a
Market share of loan origination for New York City MSA               10.8%             9.7%         10.1%
Market share of census tracts that were:
                                                                                                                          a
  LMI                                                                   6.8              6.2           9.2
                                                                                                                          a
  Minority                                                              9.1              8.0           8.9
Portfolio share of census tracts that were:
  LMI                                                                   6.8              6.6          10.4           9.4%
  Minority                                                             39.6             38.2          41.1            40.1
                                         a
                                         FRB provided us with 1998 HMDA data that allowed us to calculate portfolio, but not market share
                                         measures of lending performance.
                                         Source: HMDA data.




                                         Page 52                      GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
Appendix VI

Comments From the Federal Reserve Board




              Page 53   GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
Appendix VII

Comments From the Office of the
Comptroller of the Currency




               Page 54   GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
Appendix VIII

GAO Contacts and Staff Acknowledgments


                  Thomas J. McCool, (202) 512-8678
GAO Contacts      William B. Shear, (202) 512-4325

                  In addition to those named above, Joan M. Conway, Rachel M. DeMarcus,
Acknowledgments   Nancy Eibeck, Christopher C. Henderson, Sindy Udell, and Tonita G.
                  Woodson made key contributions to this report.




                  Page 55             GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
Page 56   GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
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