Federal Deposit
Insurance Corporation

Robert Feldman, Executive Secretary
ATTN : Comments
Federal Deposit Insurance Corporation
550 17th Street NW
Washington, DC 20429

RE: 12 CFR 345 – Proposed Amendments to the Community Reinvestment Act Regulations

Dear Mr. Feldman:

As a community bank, we strongly endorse the federal regulators' proposal to expand the number of financial institutions that will be examined under the streamlined small institution examination provisions of CRA. Your proposal achieves this result by increasing the asset threshold of banks that would qualify as community institutions from $250 million to $500 million and disregarding ownership by a bank holding company. This proposal will greatly reduce regulatory burden.

The Farmers & Merchants State Bank is a $715 million independent, community bank located in Archbold, Ohio serving a rural, but industrialized five-county area in northwest Ohio. While we strongly support your proposal in its current form, we would we would urge you to consider extending the benefits of your amendments by raising the asset threshold even further to $1 billion. When a bank must comply with the requirements of the large bank CRA evaluation process, the costs and burdens increase dramatically. Resources devoted to CRA compliance are resources not available for meeting the credit demands of the community we serve.

The small bank examination process is a simple, straightforward analysis of whether a community bank is meeting the credit needs of its community. Many traditional CRA tests like the investment test or the service test are not relevant for community banks. The business of community banking revolves around making loans in their communities. Plus, the regulatory burdens fall disproportionately on small banks that don't have the staff, software, or the expertise to comply with the more complex CRA test and data coding requirements. Finally, and perhaps more importantly, a true community bank will not survive if it is not responsive to the borrowing needs of its entire community.

Since the CRA regulations were last updated the regulatory burdens on small banks have grown much larger.. including new reporting requirements under HMDA, the USA Patriot Act, and the new privacy requirements under Title V of Gramm-Leach-Bliley. The nature of community banking has, however, not changed. Community banks have less staff and fewer resources to comply with this ever-increasing compliance burden. Your proposal is an opportunity to help stem this ever-increasing tide of regulatory costs, and ensure that community banks can survive, so they will be around to help serve the needs of their communities. The streamlined exam for smaller institutions accurately captures the information necessary for examiners to assess whether a community bank is meeting the credit needs of its community. Nothing more is required to satisfy the requirements of the Community Reinvestment Act.

Ironically, community activists seem oblivious to the costs and burdens of CRA compliance. And yet, they object to bank mergers that remove the local bank from the community. This is contradictory. If community groups want to keep the local banks in the community where they have better access to decision-makers, they must recognize that regulatory burdens are strangling these institutions and forcing them to consider selling to larger institutions that can better manage the burdens.

There are many valid reasons for raising this threshold and expanding the application of the streamlined CRA test even further than initially proposed. First of all, raising the threshold in this fashion will still leave the vast majority of the assets in the banking system under more complex CRA analysis. Nationally, increasing the threshold to $1 billion will add only 524 financial institutions to the small bank exam program. The proposal as published in the Federal Register will exempt 9% of banking assets, and the more expansive exemption we suggest would only expand that to 11% of banking assets. Second, increasing the threshold will keep the focus of community banks on local lending. This is consistent with the requirements of the Community Reinvestment Act, and what policymakers should want as our nation works through a jobless recovery. Exempting those additional institutions will turn loose additional lending resources, particularly in smaller communities, which our institution presently serves. In America's smaller towns the only economic engine to invest in new jobs and new growth is the local financial institution.

In conclusion, the Farmers & Merchants State Bank strongly supports your proposal to increase the asset threshold for banks to be eligible for the streamlined CRA exam. For the reasons stated, we would further encourage urge you to go beyond maintaining the status quo by expanding the exemption to, include community banks with assets up to $1 billion. Updating the CRA regulations will still enable regulators to fulfill their responsibility under CRA to ensure that all banks are helping to meet the credit needs of their community. This action, however, will remove some of the most problematic and burdensome elements of the current CRA regulation that is drowning community banks in regulatory red tape.

Edward A. Leininger
EVP/Chief Operating Officer

Marilyn K. Johnson
AVR/Compliance & CRA Director

Farmers & Merchants State Bank
307-11 North Defiance Street
Archbold, OH