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FDIC Federal Register Citations

[Federal Register: August 20, 2004 (Volume 69, Number 161)]
[Proposed Rules]
[Page 51611-51616]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20au04-18]

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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 345

RIN 3064-AC50


Community Reinvestment

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Deposit Insurance Corporation (FDIC), is proposing
revisions to 12 CFR 345 implementing the Community Reinvestment Act
(CRA) that would change the definition of ``small bank'' to raise the
asset size threshold to $1 billion regardless of holding company
affiliation; add a community development activity criterion to the
streamlined evaluation method for small banks with assets greater than
$250 million and up to $1 billion; and expand the definition of
``community development'' to encompass a broader range of activities in
rural areas. In addition to seeking comment on this proposal, the FDIC
is also seeking comments on these and any other options.

DATES: Comments must be received on or before September 20, 2004.

ADDRESSES: You may submit comments, identified by RIN number 3064-AC50
by any of the following methods:
Agency Web site: http://www.FDIC.gov/regulations/laws/federal/propose.html
.

Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th
Street, NW., Washington, DC 20429.
Hand Delivered/Courier: The guard station at the rear of
the 550 17th Street Building (located on F Street), on business days
between 7 a.m. and 5 p.m.
E-mail: comments@fdic.gov. Include RIN number 3064-AC50 in
the subject line of the message.
Public Inspection: Comments may be inspected and
photocopied in the FDIC Public Information Center, Room 100, 801 17th
Street, NW., Washington, DC, between 9 a.m. and 4:30 p.m. on business
days.
Instructions: Submissions received must include the agency name and
RIN for this rulemaking. Comments received will be posted without
change to http://www.FDIC.gov/regulations/laws/federal/propose.html,
including
any personal information provided.

FOR FURTHER INFORMATION CONTACT: Richard M. Schwartz, Counsel, Legal
Division, (202) 898-7424; or Susan van den Toorn, Counsel, Legal
Division, (202) 898-8707; Robert W. Mooney, Chief, CRA and Fair Lending
Policy Section, Division of Supervision and Consumer Protection;
Deirdre Ann Foley, Senior Policy Analyst, Division of Supervision and
Consumer Protection, (202) 898-6612; or Pamela Freeman, Policy Analyst,
Division of Supervision and Consumer Protection, (202) 898-6568 ,
Federal Deposit Insurance Corporation, 550 17th Street, NW.,
Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

Executive Summary

The Federal Deposit Insurance Corporation (FDIC), is proposing
revisions to 12 CFR 345 implementing the Community Reinvestment Act
(CRA) that would: (a) change the definition of ``small bank'' to raise
the asset size threshold to $1 billion regardless of holding company
affiliation; (b) add a community development activity criterion to the
streamlined evaluation method for small banks with assets greater than
$250 million and up to $1 billion; and (c) expand the definition of
``community development'' to encompass a broader range of activities in
rural areas.

In making this proposal, the FDIC also considered other options
such as raising the threshold for small banks to $1 billion with no
community development criterion, and raising the threshold for small
banks to $500 million with no community development criterion. As a
result, in addition to seeking comment on this proposal, the FDIC is
also seeking comments on these and any other options.
In 1995, the FDIC, along with the other Federal banking agencies
(the Office of the Comptroller of the Currency (OCC), the Board of
Governors of the Federal Reserve System (Board), and the Office of
Thrift Supervision (OTS)) (collectively, ``the agencies''), adopted
major amendments to the CRA regulations. In connection with those
amendments, the agencies committed to reviewing the effectiveness of
the CRA regulations. Thus, on July 19, 2001, the agencies published an
advance notice of proposed rulemaking (ANPR), seeking public comment on
a wide range of questions concerning the CRA regulations. 66 FR 37602
(July 19, 2001). The agencies received about four hundred comments on
the ANPR.

On February 6, 2004, the agencies issued a Notice of Proposed
Rulemaking
(NPR), developed following the agencies' review of the CRA
regulations and the comments received on the ANPR.\1\ 69 FR 5729 (Feb.
6, 2004). In the February 2004 NPR, the agencies stated that the CRA
regulations were essentially sound, but were in need of some updating
to keep pace with changes in the financial services industry. Notably,
to reflect economic change in the industry and reduce unwarranted
burden consistent with ongoing efforts to identify and reduce
regulatory burden where appropriate and feasible, the agencies proposed
to amend the definition of ``small bank'' to mean an institution with
total assets of less than $500 million, without regard to any holding
company affiliation. This change would take into account substantial
institutional asset growth and consolidation in the banking and thrift
industries since the $250 million definition was adopted in 1995.
In light of certain responses found in the comment letters
responding to the February 2004 NPR, the FDIC has decided to publish
for comment this NPR with respect to how ``small banks'' are defined
and evaluated and other matters. The FDIC, in keeping with its
commitment to review its regulations implementing the CRA, seeks
comments on whether this proposal presented here would: enhance the
effectiveness of the CRA regulations and CRA evaluations by addressing
concerns about community development needs, including those of rural
communities; and reduce regulatory burden by updating the regulation in
light of changes in the banking industry over the past ten years. The
FDIC seeks

[[Page 51612]]

further comment on the impact of the new proposal on banks regulated by
the FDIC and on how such a change would impact those banks' activities
in their local communities. This proposal does not address predatory
lending or other aspects of the February 2004 NPR. It is anticipated
that the February 2004, proposal will not be acted upon until a final
decision is made regarding the small bank definition issue and other
matters raised in this notice.
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\1\ This NPR is referred to throughout this document as ``the
February 2004 NPR.''
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Introduction

After considering the comments on the NPR (69 FR 5729), the FDIC is
proposing revisions to 12 CFR 345, implementing the CRA (12 U.S.C. 2901
et seq.). This proposal would revise the definitions of ``community
development'' in 12 CFR 345.12(g), and of ``small bank'' in 12 CFR
345.12(u). In addition, this proposal would amend the ``small bank
performance standards'' in 12 CFR 345.26, and the CRA ratings guidance
set out for ``small banks'' in 12 CFR 345, Appendix A, subpart (d).

Background

In 1977, Congress enacted the CRA to encourage insured banks and
thrifts to help meet the credit needs of their entire communities,
including low- and moderate-income communities, consistent with safe
and sound lending practices. In the CRA, Congress provided that
regulated financial institutions are required to demonstrate that their
deposit facilities serve the convenience and needs of the communities
in which they are chartered to do business, and that the convenience
and needs of communities include the need for credit as well as deposit
services.
In 1995, when the agencies adopted major amendments to regulations
implementing the CRA, the agencies committed to reviewing the amended
regulations in 2002 for their effectiveness in placing performance over
process, promoting consistency in evaluations, and eliminating
unnecessary burden. 60 FR 22156 (May 4, 1995). The review was initiated
in July 2001 with the publication in the Federal Register of an ANPR 66
FR 37602 (July 19, 2001). We indicated that we would determine whether
and, if so, how the regulations should be amended to better evaluate
financial institutions' performance under CRA, consistent with the
Act's authority, mandate, and intent. We solicited comment on the
fundamental issue of whether any change to the regulations would be
beneficial or warranted, and on other aspects of the regulations. About
400 comment letters were received, most from banks and thrifts of
varying sizes and their trade associations (``financial institutions'')
and local and national nonprofit community advocacy and community
development organizations (``community organizations'').
The comments reflected a consensus that fundamental elements of the
regulations are sound, but demonstrated a disagreement over the need
and reasons for change. Based on those comments, in February 2004, the
agencies proposed limited amendments in two major areas. First, to
reduce unwarranted burden, we proposed to amend the definition of
``small institution'' to mean an institution with total assets of less
than $500 million, regardless of the size of its holding company.
Second, to better address abusive lending practices in CRA evaluations,
we proposed specific amendments to provide that the agencies will take
into account, in assessing an institution's overall CRA performance,
evidence that the institution, or any affiliate whose loans have been
included in the institution's CRA performance evaluation, has engaged
in illegal credit practices, including unfair or deceptive practices,
or a pattern or practice of secured lending based predominantly on the
liquidation or foreclosure value of the collateral, where the borrower
cannot be expected to be able to make the payments required under the
terms of the loan.
The FDIC received nearly 1,000 comment letters in response to the
February 2004 NPR. As described below, the FDIC has decided to provide
notice and seek further comment on the ``small bank'' definition issue
and other matters. The current proposal adjusts the ``small bank''
definition to include all banks that, as of December 31 of either of
the prior two calendar years, had total assets of up to $1 billion,
without regard to holding company affiliation. This proposal does not
address or rescind any other aspect of the February 2004 NPR.
The following data is intended to provide additional context for
the discussion of this issue. When the $250 million definition was
adopted in the 1994/1995 time period, 19.6% of insured depository
institutions were classified as large institutions, and they held 86.2%
of total bank and thrift assets. As of March 31, 2004, 24.6% of insured
depository institutions were classified as large institutions, and they
held 93.3% of total bank and thrift assets. As of that same date, 12.1%
of insured depository institutions, holding 89% of assets, were larger
than $500 million. And, 6.3% of insured depository institutions,
holding 85.1% of assets, were larger than $1 billion. In sum, on an
industry-wide basis, while increasing the small institution size to $1
billion would result in a decrease in the percentage of institutions
considered ``large,'' the percentage of industry assets held by large
institutions would decrease to 85.1%--down from 86.2% when the $250
million level was adopted in 1995.
This proposal, however, would only cover state nonmember banks.
Because these banks tend to be smaller than the industry average, the
impact on banks directly supervised by FDIC is different from the
impact on the overall industry.
In 1995, 10.6% of the banks supervised by the FDIC were classified
as large banks, and those banks held 66.7% of the assets of banks
supervised by FDIC. As of March 31, 2004, 20.9% of the banks supervised
by the FDIC held over $250 million in assets, and they had 79.8% of the
assets of the banks supervised by the FDIC . Increasing the small bank
definition to $500 million would, in 2004, result in 9.3% of the banks
supervised by the FDIC, with 67.9% of assets, being large banks.
Increasing the small bank definition to $1 billion would result in 4.3%
of the banks supervised by the FDIC, with 57.9% of assets, being large
banks. In sum, increasing the definition of small banks to $1 billion
would result in a decline in the percentage of state nonmember banks
classified as large banks from 10.6% to 4.3%, and a decline in the
percentage of assets of state nonmember banks being held by large banks
declining from 66.7% in 1995 to 57.9%

Comment Letters on the ``Small Bank'' Definition

As noted above, the FDIC received almost 1,000 comments on the
February 2004 NPR, including a letter from 31 United States Senators
and rejoinders to that letter, all of which we have accepted as comment
letters. The commenters were distributed among industry entities,
community organizations, and individuals. As stated above, we also
received comments from Federal legislators and one state regulator. All
together, the FDIC received nearly 900 comment letters that
specifically addressed the ``small bank'' proposal. Of those comment
letters, FDIC received 534 letters clearly in favor of increasing the
size limit in the definition of small banks, and 334 letters against
the proposal. Of the letters in favor of the proposal, 475 of the
commenters favored a higher asset threshold than the amount proposed in
the NPR. The most

[[Page 51613]]

common amount mentioned in those letters was a threshold of $1 billion.
The comment letters in favor of raising the small bank threshold
beyond the proposed $500 million threshold to $1 billion, or more,
generally stated that higher amount would be appropriate for two
primary reasons. First, the commenters stated that keeping the focus of
small institutions on lending, which the small institution examination
does, would be entirely consistent with the purpose of CRA, which is to
ensure that the Agencies evaluate how institutions help to meet the
credit needs of the communities they serve. Those commenters also
suggested that the large bank test requirements were proving to be
unworkable because multi-billion dollar banks were regularly outbidding
smaller banks for qualified investments. Second, the commenters stated
that raising the limit to $1 billion would have only a small effect on
the amount of total industry assets covered under the large bank tests,
yet, the additional burden relief provided for the institutions with
assets under $1 billion would be substantial.
In contrast, community organizations generally expressed concern
about the likely effects of the proposed change on residents of rural
communities and residents of states with smaller financial
institutions. These commenters stated that the large bank CRA
examination does a better job of encouraging investment in the
community than the small bank examination does. For example, these
banks, according to these commenters, would no longer be held
accountable under CRA exams for investing in products such as Low
Income Housing Tax Credits, which, they contend, have been a major
source of affordable rental housing. The commenters also either
questioned the amount of burden relief that would be afforded to
financial institutions, or stated that under CRA value to the community
was paramount to the incremental burden relief to the banks.
With respect to comments on the part of the proposal concerning
smaller banks under a holding company with assets of $1 billion of
more, the comment letters again split along industry/community group
lines. The industry groups stated that a community bank does not cease
to be a community bank--with the same concerns about serving its
community and about reducing regulatory burden--by becoming part of a
larger holding company. Community groups expressed concern that by
removing the holding company threshold from the definition of small
bank, regulators will not only reduce the number of institutions
subject to the large bank test, but also create a potential loophole
for large holding companies to exploit when trying to evade CRA
compliance. That is, this change raises the possibility, in the view of
community groups, that large holding companies will reform their
banking subsidiaries as a series of local ``small banks'' to avoid the
investment and service tests. Industry commenters stated, in response,
that they were unaware of any institutions that choose their form of
corporate organization in order to minimize their CRA compliance
burden.

Discussion

Small Bank Definition

Under the current CRA regulations, an institution is deemed
``large'' in a given year if, at the end of both of the previous two
years, it had assets of $250 million or more, or if it is affiliated
with a holding company with total bank or thrift assets of $1 billion
or more.
The large retail institution test is comprised of the lending,
investment, and service tests. The most heavily weighted part of that
test is the lending test, under which the agencies consider the number
and amount of loans originated or purchased by the institution in its
assessment area; the geographic distribution of its lending;
characteristics, such as income level of its borrowers; its community
development lending; and its use of innovative or flexible lending
practices to address the credit needs of low- or moderate-income
individuals or geographies in a safe and sound manner. Large
institutions must collect and report data on small business loans,
small farm loans, and community development loans, and may, on an
optional basis, collect data on consumer loans.
Under the investment test, the agencies consider the dollar amount
of qualified investments, their innovativeness or complexity, their
responsiveness to credit and community development needs, and the
degree to which they are not routinely provided by private investors.
Under the service test, the agencies consider an institution's
branch distribution among geographies of different income levels; its
record of opening and closing branches, particularly in low- and
moderate-income geographies; the availability and effectiveness of
alternative systems for delivering retail banking services in low- and
moderate-income geographies and to low- and moderate-income
individuals; and the range of services provided in geographies of
different income levels, as well as the extent to which those services
are tailored to meet the needs of those geographies. The agencies also
consider the extent to which the institution provides community
development services and the innovativeness and responsiveness of those
services.
In contrast, the performance of a small bank--an institution
currently with assets under $250 million and not part of a holding
company with bank and thrift assets over $1 billion--is evaluated under
a streamlined test that focuses primarily on lending. The test
considers the institution's loan-to-deposit ratio; the percentage of
loans in its assessment areas; its record of lending to borrowers of
different income levels and businesses and farms of different sizes;
the geographic distribution of its loans; and its record of taking
action, if warranted, in response to written complaints about its
performance in helping to meet credit needs in its assessment areas.
As we stated in the February 2004 NPR:

The [CRA] regulations distinguish between small and large
institutions for several important reasons. Institutions' capacities
to undertake certain activities, and the burdens of those
activities, vary by asset size, sometimes disproportionately.
Examples of such activities include identifying, underwriting, and
funding qualified equity investments, and collecting and reporting
loan data. The case for imposing certain burdens is sometimes more
compelling with larger institutions than with smaller ones. For
instance, the number and volume of loans and services generally tend
to increase with asset size, as do the number of people and areas
served, although the amount and quality of an institution's service
to its community certainly is not always directly related to its
size. Furthermore, evaluation methods appropriately differ depending
on institution size. Commenters from various viewpoints tended to
agree that the regulations should draw a line between small and
large institutions for at least some purposes. They differed,
however, on where the line should be drawn. 69 FR 5729.

We have carefully reviewed the comment letters. The FDIC considered
a range of options raised by the comments. For example, we considered
raising the small bank threshold to banks with assets up to $500
million with no community development test. We also considered raising
the small bank threshold to $1 billion, with no additional changes. We
also considered making no changes to the small bank definition. We
further considered various approaches to address concerns raised about
the needs of rural and other underserved communities. After this
analysis, the FDIC has decided to issue

[[Page 51614]]

a new proposal, rather than issue a final rule at this time. We now
propose amending the ``small bank'' definition to $1 billion.
In addition, we are proposing to add a mandatory community
development criterion for those small banks with assets over $250
million and we are proposing to amend the community development
definition to emphasize the importance of investments and services in
rural communities. We seek comment on whether the proposal, as further
modified below, would better enable those banks to focus their
resources--both time and financial--on community-based lending
activities and on more selective investment and service activities. We
also invite public comment on whether other approaches would be more
appropriate. For example, is there another appropriate threshold to use
when defining small banks?

Community Development Criterion

The consideration of community development activities has always
been part of the CRA evaluation process, regardless of size of the
institution. Appendix A, section (d)(2), to 12 CFR part 345 now states
that if a small bank requests consideration for an ``Outstanding''
rating, the FDIC will consider, in addition to determining whether the
small bank exceeds each of the standards required to obtain a
``satisfactory'' rating, the extent to which it makes qualified
investments and provides branches and other services that enhance
credit availability in its assessment area(s). This is further
explained in the Interagency Questions and Answers Regarding Community
Reinvestment (``Interagency Questions and Answers''). 66 FR 36620 (July
12, 2001). We are, however, concerned that smaller institutions that
are presently covered by the large bank tests have noted difficulties
with making qualified investments including the ability to compete with
larger banks for investment opportunities and maintaining staff and
resources to do so.
In light of these considerations, we propose to add a mandatory
community development performance criterion for banks with assets
greater than $250 million and up to $1 billion as an additional
component of the streamlined small bank standards. This community
development criterion would be evaluated along with the current
streamlined criterion applicable to all small banks.
For those banks covered by this community development criterion,
the FDIC will assess a bank's record of helping to meet the needs of
its assessment area(s) through a combination of its community
development lending, qualified investments, or community development
services. Such banks will be required to engage in activities that meet
credit needs in their assessment area(s), but may balance their
community development lending, investing and service activities based
on the opportunities in the market and the banks' own strategic
strengths. For example, a bank with assets greater than $250 million
and up to $1 billion may perform well under the community development
criterion by engaging in one or more as opposed to all of the
activities.
We request comment on whether instead of adding a community
development criterion for small banks between $250 million and $1
billion as the proposal would do, should the FDIC instead apply a
separate community development test in addition to existing streamlined
performance criteria applicable to small banks to evaluate community
development activities of such banks? If such a test were to be
imposed, how should these activities be weighted in assigning a
performance rating? How should the ratings of both the existing
streamlined performance criteria and the community development test be
weighted in assigning an overall performance rating?
Community development activities for banks with assets greater than
$250 million and up to $1 billion will be evaluated by the FDIC when
assigning a CRA rating. Appendix A to the CRA regulations will continue
to reflect that for a small bank to receive an ``Outstanding'' CRA
rating, the FDIC will consider the extent to which that bank exceeds
each of the ``Satisfactory'' performance standards, now including an
explicit community development criterion applicable to banks with
assets greater than $250 million and up to $1 billion.
Banks with assets under $250 million can attain an ``Outstanding''
rating in two ways. First, when the bank's performance materially
exceeds satisfactory standards for each of the five lending criteria.
(This proposal does not change the existing regulation, see:
Interagency Questions and Answers Sec. .26(b)-1.) Or second, when the
bank has satisfactory performance standards for each of the five
lending criteria and, in addition, requests consideration of community
development loans, qualified investments or services and those are
found to warrant an Outstanding rating. (This provision reflects a
conforming change to parallel the new community development criterion
for banks over $250 million to $1 billion which permits a bank to
choose among community development activities.)

Community Development in Rural Communities

As stated above, many community organization commenters expressed
concern about investments and service to rural communities. To address
this concern, we propose amending the definition of ``community
development,'' which now focuses on activities that benefit low- and
moderate-income individuals. As proposed, ``community development''
activity could benefit either low- and moderate-income individuals or
individuals who reside in rural areas.\2\ We seek comment on whether
our proposed change to the community development definition encompasses
the full range of community development activity that benefits rural
areas. We also ask for comment on whether a definition of ``rural''
would be helpful, and if so, how that term should be defined.
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\2\ This change will impact the community development test
currently in the regulation for wholesale or limited purpose banks.
We seek comment on whether this impact is significant.
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Conclusion
In sum, the proposed changes would not diminish in any way the
obligation of all insured depository institutions subject to CRA to
help meet the credit needs of their communities. Rather, the proposal
is intended to improve the effectiveness of CRA evaluations by
permitting banks to focus on community development activities based on
the opportunities in the market and the needs of the community,
including low- and moderate-income areas; address particular concerns
relating to investments and services provided to rural communities; and
update the regulation to take account of economic changes in the
industry.
The FDIC seeks comment on all aspects of the proposal. The FDIC
solicits comments on whether the small bank definition threshold of
less than $1 billion is appropriate. Should a community development
criterion be included that offers choices to banks or not? The FDIC
also seeks comment on whether other approaches would better improve the
effectiveness of CRA evaluations for small institutions, while reducing
unwarranted burden.

[[Page 51615]]

Regulatory Analysis

Paperwork Reduction Act

In accordance with the requirements of the Paperwork Reduction Act
of 1995, the agencies may not conduct or sponsor, and the respondent is
not required to respond to, an information collection unless it
displays a currently valid Office of Management and Budget (OMB)
control number. This proposal would result in a change in the paperwork
burden under OMB-approved information collection 3064-0092. The change
in the collection of information contained in this proposal has,
therefore, been submitted to OMB for review.
Written comments on the collection of information should be sent to
Mark Menchik, FDIC desk officer: Office of Management and Budget,
Office of Information and Regulatory Affairs, New Executive Office
Building, Washington, D.C. 20503. Copies of comments should also be
addressed to: Leneta G. Gregorie, Legal Division, Room MB-3082, Federal
Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC
20429. All comments should refer to the title of the proposed
collection. Comments may be hand-delivered to the guard station at the
rear of the 17th Street Building (located on F Street), on business
days between 7 a.m. and 5 p.m., Attention: Comments/Executive
Secretary, Federal Deposit Insurance Corporation, 550 17th Street, NW.,
Washington, DC 20429. For further information on the Paperwork
Reduction Act aspect of this proposal, contact Leneta Gregorie at the
above address.
Comment is solicited on:
1. Whether the collection of information is necessary for the
proper performance of FDIC functions, including whether the information
will have practical utility;
2. The accuracy of our estimate of burden of the proposed
collection of information, including the validity of the methodology
and assumptions used;
3. The quality, utility, and clarity of the information to be
collected;
4. Ways to minimize the burden of the information collection on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, for example,
permitting electronic submission of responses; and
5. Estimates of capital or start-up costs and costs of operation,
maintenance, and purchases of services to provide information.
Title of the collection: Community Reinvestment--12 CFR 345.
Frequency of Response: Annual.
Affected Public: State nonmember banks.
Abstract: This Paperwork Reduction Act section estimates the burden
that would be associated with the regulations if the agency were to
change the definition of ``small bank as proposed, that is, increase
the asset threshold from $250 million to $1 billion and eliminate any
consideration of holding-company size. The proposed change, if adopted,
would make ``small'' approximately 875 FDIC-regulated institutions that
do not now have that status. That estimate is based on data for FDIC-
regulated institutions that filed Call or Thrift Financial Reports on
June 30, 2004. Those data also underlie the estimated paperwork burden
that would be associated with the regulations if the proposals were
adopted by the FDIC. The proposed change to amend the small bank
performance standards to incorporate a community development test would
have no impact on paperwork burden because the evaluation is based on
information prepared by examiners.
Estimated Paperwork Burden under the Proposal:
Number of Respondents: 5,296.
Estimated Time Per Response: Small business and small farm loan
register, 219 hours; Consumer loan data, 326 hours; Other loan data, 25
hours; Assessment area delineation, 2 hours; Small business and small
farm loan data, 8 hours; Community development loan data, 13 hours;
HMDA out-of-MSA loan data, 253 hours; Data on lending by a consortium
or third party, 17 hours; Affiliated lending data, 38 hours; Request
for designation as a wholesale or limited purpose bank, 4 hours; and
Public file, 10 hours.
Total Estimated Annual Burden: 193,975 hours. (The estimated burden
hours under the current proposal represents a decrease in burden from
the February 2004 proposal of 137,383 hours.)

Regulatory Flexibility Act

Pursuant to section 605(b) of the Regulatory Flexibility Act, the
FDIC certifies that since the proposal would reduce burden and would
not raise costs for small institutions, this proposal will not have a
significant economic impact on a substantial number of small entities.
This proposal does not impose any additional paperwork or regulatory
reporting requirements. The proposal would increase the overall number
of small banks that are permitted to avoid data collection requirements
in 12 CFR part 345. Accordingly, a regulatory flexibility analysis is
not required.

The Treasury and General Government Appropriations Act, 1999--
Assessment of Impact of Federal Regulation on Families

The FDIC has determined that this proposal will not affect family
well-being within the meaning of section 654 of the Treasury and
General Government Appropriations Act, 1999, Public Law 105-277, 112
Stat. 2681.

FDIC Solicitation of Comments Regarding the Use of ``Plain Language''

Section 722 of the Gramm-Leach-Bliley Act of 1999 requires the FDIC
to use ``plain language'' in all proposed and final rules published
after January 1, 2000. The FDIC invites comments on whether the
proposal is clearly stated and effectively organized, and how the FDIC
might make the proposed text easier to understand.

List of Subjects in 12 CFR Part 345

Banks, Banking, Community development, Credit, Investments,
Reporting and recordkeeping requirements.

Federal Deposit Insurance Corporation

12 CFR Chapter III

Authority and Issuance

For the reasons set forth in the preamble, the Board of Directors
of the Federal Deposit Insurance Corporation proposes to amend part 345
of chapter III of title 12 of the Code of Federal Regulations to read
as follows:

PART 345--COMMUNITY REINVESTMENT

1. The authority citation for part 345 continues to read as
follows:

Authority: 12 U.S.C. 1814-1817, 1819-1820, 1828, 1831u and 2901-
2907, 3103-3104, and 3108(a).

2. Revise Sec. 345.12 to read as follows:
a. Revise paragraphs (g)(1), (g)(2), and (g)(4); and
b. Revise paragraph (u) to read as follows:


Sec. 345.12 Definitions.

* * * * *
(g) Community development means:
(1) Affordable housing (including multifamily rental housing) for
low-or moderate-income individuals or for individuals in rural areas;
(2) Community services targeted to low-or moderate-income
individuals or to individuals in rural areas;
* * * * *

[[Page 51616]]

(4) Activities that revitalize or stabilize low-or moderate-income
geographies or rural areas.
* * * * *
(u) Small bank means a bank that, as of December 31 of either of
the prior two calendar years, had total assets up to $1 billion.
* * * * *
3. Revise Sec. 345.26 to read as follows:
a. Section 345.26(a)(4) is amended to remove the word ``and'' at
the end;
b. Section 345.26(a)(5) is amended by removing the period and by
adding ``; and'' at the end of the paragraph;
c. A new Sec. 345.26(a)(6) is added;
d. Redesignate paragraph (b) as paragraph (c); and
e. Add new paragraph (b) to read as follows:


Sec. 345.26. Small bank performance standards.

(a) * * *
(6) For small banks with assets greater than $250 million and up to
$1 billion, the bank's record of community development activities, as
discussed in subpart (b) of this part, through its community
development lending, qualified investments, or community development
services.
(b) Community development criterion for certain small banks. The
FDIC also evaluates the community development performance of a small
bank with assets greater than $250 million and up to $1 billion
pursuant to the following criteria:
(1) The number and amount of community development loans (including
originations and purchases of loans and other community development
loan data provided by the bank, such as data on loans outstanding,
commitments, and letters of credit), qualified investments, or
community development services;
(2) The use of innovative or complex qualified investments,
community development loans, or community development services and the
extent to which the investments are not routinely provided by private
investors; and
(3) The bank's responsiveness to credit and community development
needs.
(4) Indirect activities. At a bank's option, the FDIC will consider
in its community development performance assessment:
(i) Qualified investments or community development services
provided by an affiliate of the bank, if the investments or services
are not claimed by any other institution; and
(ii) Community development lending by affiliates, consortia and
third parties, subject to the requirements and limitations in Sec.
345.22(c) and (d).
* * * * *
4. Appendix A to Part 345 is amended to read as follows:
a. (d)(1)(iv) is amended to remove the word ``and'' at the end;
b. (d)(1)(v) is amended to remove the period and add ``; and'' at
the end;
c. A new (d)(1)(vi) is added; and
d. Revise paragraph (d)(2) to read as follows:

Appendix A to Part 345--Ratings

* * * * *
(d) * * *
(1) * * *
(vi) For banks with assets greater than $250 million and up to
$1 billion, adequate responsiveness to community development needs
through community development lending qualified investments or
community development services in its assessment area(s) or that
benefit a broader statewide or regional area that includes the
bank's assessment area(s).
(2) Eligibility for an outstanding rating. (i) A bank that meets
each of the standards for a ``satisfactory'' rating under this
paragraph (including the community development criterion for a bank
with assets greater than $250 million and up to $1 billion), and
exceeds some or all of those standards may warrant consideration for
an overall rating of ``outstanding.'' In assessing whether a bank's
performance is ``outstanding,'' the FDIC considers the extent to
which the bank exceeds each of the performance standards for a
``satisfactory'' rating.
(ii) A bank with assets up to $250 million that meets
performance standards for a satisfactory rating also may request
consideration for an ``outstanding rating'' based on consideration
of community development lending, qualified investments, or services
that benefit its assessment area(s) or a broader statewide or
regional area that includes the bank's assessment area(s).
* * * * *

Dated at Washington, DC, this 16th day of August, 2004.

By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.

[FR Doc. 04-19021 Filed 8-19-04; 8:45 am]
BILLING CODE 6714-01-P

Last Updated 08/20/2004 regs@fdic.gov