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FDIC Federal Register Citations
Center for Rural Affairs
From: Bailey, Jon [mailto:Jonb@cfra.org]
Sent: Monday, September 20, 2004 10:21 AM
To: Comments
Subject: RIN 3064-XXXX; RIN 3064-AC50
The Center for Rural Affairs urges the FDIC to withdraw its ill-conceived
proposals to modify Community Reinvestment Act (CRA).
Established in 1973, the Center for Rural Affairs is a private, non-profit
organization headquartered in Lyons, Nebraska, and works to strengthen
small businesses, family farms and ranches, and rural communities through
action oriented programs addressing social, economic, and environmental
issues.
CRA has been instrumental in increasing homeownership, boosting economic
development, and expanding small businesses in the nation’s rural
communities. Your proposal would dramatically diminish banks’ obligation
to reinvest in their communities. It revises the CRA rules to make the
less rigorous CRA exam applicable to an additional 900 banks with assets
of $401 billion. Adoption of the FDIC measure is likely to mean the loss
of hundreds of millions of dollars in loans, investments, and services
for rural communities and would disproportionately impact rural areas
and small cities where the market presence of these mid-sized banks is
often great.
FDIC rulemaking on this matter is badly flawed both in terms of procedure
and substance. The proposal was adopted on a divided vote at a board
meeting that was called on unusually short notice, and that provided
some board members with only limited opportunity for prior review. The
board provided a minimal 30-day public comment period. This comment period
is unusually and unnecessarily brief for consideration of such a controversial
rule and began during a traditional summer vacation month. Further, at
least one of the board members (OTS Director Gilleran) has evidenced
a lack of interest and concern for encouraging public input by seeking
at the board meeting to condition his vote upon a guarantee that another
meeting to finalize the rule would be held only one month after the close
of the public comment period. All of these actions suggest to us the
FDIC board majority is merely going through the motions before finalizing
the proposed rules.
The FDIC rule, as proposed, would greatly weaken or eliminate extremely
important standards necessary to ensure that CRA works for rural communities.
The proposed change would weaken the lending test and also eliminate
the investment and service parts of the CRA exam for FDIC supervised
banks that have assets between $250 million and $1 billion.
The FDIC plan to add a community development criterion in lieu of the
more precise investment and service tests applicable today (that collectively
count for 50 percent of a bank’s CRA grade) is a wholly inadequate
substitute for the present exam standards. The new factor permits these
banks to satisfy the community development criterion by choosing whether
to provide community development loans, investments or services instead
of assessing their performances for all three categories, as is currently
required. This change is likely to result in a significant drop-off of
lending, investments and services for affordable housing development,
Low Income Housing Tax Credits, and economic development projects.
Another harmful element in your proposal is the dramatic weakening of
the lending test for midsized banks which could decrease access to credit
for many Americans. Under your proposal banks with assets between $250
million and $1 billion assets will no longer be required to collect and
report essential lending information such as small business lending by
census tracts or revenue size of the small business borrowers. Without
data on lending to small businesses, it is impossible for the public
to hold the mid-size banks accountable for meeting the credit needs of
minority-owned, women-owned, and other small businesses. Such data collection
and the requirements of CRA concerning small business are vital to rural
communities. Our research shows that nearly 70 percent of all recent
job growth in rural communities of the Great Plains (Iowa, Kansas, Minnesota,
Nebraska, North Dakota and South Dakota) is from non-farm small business
and self-employment. In Nebraska, our research has shown that over one-third
of the jobs in rural counties are from small business with five or fewer
employees. Small businesses are vital to the economic viability and the
future of rural communities. Without CRA requirements to provide capital
small businesses and low- and moderate-income entrepreneurs in rural
areas, and without the data to hold banks accountable, the future of
many rural communities is bleak.
According to the FDIC data, the rule change would mean that only 223
of 5,291 (4 percent) of all FDIC-supervised banks would continue to receive
the full CRA exam. It would affect some parts of the U.S. more drastically
than others. Ninety-nine percent of rural FDIC-supervised banks would
be exempted from full coverage. It also appears that no banks in eight
states (Alaska, Arizona, Idaho, Minnesota, Montana, New Mexico, West
Virginia and Wyoming) would be fully covered by CRA. Thirty-six other
states would have five or fewer banks facing full CRA scrutiny. Further,
this proposal would broaden the definition community development so that
midsize banks could receive CRA “credit” even if these activities
are not particularly directed at serving the needs of low- and moderate-income
households, as is presently required
The FDIC proposal and the rule recently adopted by the OTS proposal water
down the CRA requirements for midsize banks and are contrary to the Act’s
statutory mandate. As you know, this mandate requires that banks, regardless
of their asset size, have a continuing and affirmative obligation to
serve the credit and deposit services needs of their local communities,
including low- and moderate-income areas. This statutory mandate has
served rural communities well. The FDIC proposal and the rule adopted
by the OTS will not. Rural communities face many challenges for their
economic and community development. Your proposed rule removes another
tool in the development toolkit that rural communities cannot afford
to lose.
We urge you to withdraw this ill-conceived proposal.
Jon M. Bailey
Director, Rural Research and Analysis Program
Center for Rural Affairs
P. O. Box 136
Lyons, NE
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