One of the most frequent CRA questions we answer is in regards to Community Development: “What are the keys to Community Development success?” Throughout our two decades of CRA consulting, there has been no single “secret sauce” for Community Development that works for every financial institution. Each market is different, and a unique approach is often required - this reminds us of the wonderful choices associated with various Carolina barbecue sauces.
There are unique flavors and recipes that all can lead to a great result with the right prep and effort, in CRA compliance and Carolina BBQ sauce. For example, here are three common versions of BBQ sauce that exist in the Carolinas:
- Eastern Carolina Classic Sauce - Simple Vinegar Base
- Lexington-Style Hill Country Sauce - Vinegar Base with Ketchup
- South Carolina Mustard Sauce - Yellow Mustard Base
The point is this: similar to BBQ sauces, different ingredients that can make up successful Community Development programs in different places. The debate over “the right ingredient” is never simple. There's no one recipe that will guarantee success, but we have gathered some best practice insights.
We have collected six of the most common key factors of successful compliance programs that our clients use:
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Active Leadership – Effective programs are typically an integrated part of the bank’s overall strategy. Progressive and engaged Senior Management are actively involved in the planning and implementation.
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Clear Targets – The commitment to regulatory compliance is made clear by setting annual performance targets that are set, reported, measured and discussed.
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Right Partners – The bank should carefully select community partners who are familiar with the target groups (e.g. small business or moderate-income residents) and partners that can share resources and expertise (e.g. Small Business Administration, private foundations, housing authorities or other financial institutions).
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Documentation of Lending and Activities – You have to document activities for the regulators along the way (not just at exam time). The most successful financial institutions have adopted a process that is supported by training and easy-to-use tools (e.g. standard activity log that is submitted to the CRA officer).
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Reporting - Consistent and timely internal reporting (e.g. quarterly performance reports) keeps various management committees and the board on target.
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Analysis and Action - In order to effectively manage the process, the facts have to be reviewed, discussed, and debated. This dialogue may result in new energy and efforts being placed into areas of need.
For reference purposes, a simple overview is offered by the OCC - click here for the Fact Sheet. This document provides concise examples/definitions of the following:
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Community development activities
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Loans that qualify as community development loans
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Qualified Investments
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Community Development Services
For decades, the debate over whether certain ingredients belong in barbecue sauce (e.g. Ketchup, Hot Sauce, Lemon Juice) has created passionate dialogue…from the low and moderate-income BBQ pits in the Appalachians to the upper income BBQ grills in the Hamptons.
If you have the right strategy (recipe), cooks (engaged leadership), powerful ingredients (partners) and the right tasting (documentation, reporting and dialogue) you will be in great shape. All Saucemeisters and CRA Officers know, the best sauces are never bought direct from the shelf…they start with the right recipe and are carefully mixed, tasted, applied and reviewed.
Ncontracts can help with the entire compliance recipe or provide specific ingredients - contact us today to learn how!
Related: How to Build a Strong Fair Lending & Redlining Compliance Management System
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