Which of the following is the best method for a large bank to use in monitoring its CRA performance?
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A. B. C. D.D
The best method for a large bank to monitor its CRA (Community Reinvestment Act) performance is by performing a geographic analysis of lending levels and dispersion of loans. Option D is the correct answer.
The CRA was enacted in 1977 to ensure that banks meet the credit needs of the communities they serve, including low- and moderate-income neighborhoods. Compliance with the CRA is an important consideration for banks, as non-compliance can result in fines and restrictions on mergers and acquisitions.
To monitor CRA performance, banks must assess their lending activities in their assessment areas. The assessment area is the geographic area that surrounds the bank's main office and its branches. The best method for monitoring CRA performance is to analyze the geographic distribution of loans, including the levels and dispersion of loans throughout the assessment area. This analysis can help the bank identify any disparities in lending patterns and make adjustments to lending practices as needed.
Option A, reviewing the effectiveness of marketing materials, is not the best method for monitoring CRA performance because it does not provide direct insight into the bank's lending activities or compliance with the CRA. Marketing materials are important for attracting customers, but they do not necessarily indicate whether the bank is meeting the credit needs of the community.
Option B, evaluating approval and denial rates for minority loan applicants, is a useful method for monitoring CRA performance, but it is not as comprehensive as a geographic analysis. Evaluating approval and denial rates can help the bank identify disparities in lending practices, but it does not provide information about the geographic distribution of loans or lending levels.
Option C, performing a quarterly evaluation of the bank's loans-to-deposits ratio, is not a good method for monitoring CRA performance because it does not provide information about the bank's lending activities or compliance with the CRA. The loans-to-deposits ratio is a financial ratio that measures the bank's ability to lend money based on its deposit base. While this ratio is important for assessing the bank's overall financial health, it does not provide insight into the bank's lending practices in its assessment area.
In summary, a geographic analysis of lending levels and dispersion of loans is the best method for a large bank to use in monitoring its CRA performance. This analysis can help the bank identify any disparities in lending patterns and make adjustments to lending practices as needed.