Federal Deposit
Insurance Corporation

From: lsuzio [mailto:lsuzio@sbcglobal.net]
Sent: Wednesday, September 22, 2004 11:41 AM
To: Comments
Subject: Re: RIN 3064-AC50

Dear Sirs,

We act as consultants to community banks regarding CRA and HMDA and we would like to express our opinions regarding the proposed changes to the CRA.

First, we applaud the idea of relieving community banks of the service and investment tests that will be one of the effects of the proposed increase in the definition of the size of a small bank. Many of our clients take their CRA responsibilities seriously, yet almost all of them are frustrated by the inability to find qualified community development investments. I have attended many CRA meetings in which the officers have expressed their futile efforts to find such investments. All too often they are outbid by major banks for the few qualified community development investments they can identify.

Second, we express our objection to the increase in small bank size when it comes to reporting loans under the CRA. The impact of the proposed change would be to eliminate up to 90% of the reporting lenders. The expressed benefit (reduction of compliance cost) in most cases would not apply. In Connecticut for example, all banks would still have to maintain loan data under the State CRA. Therefore, none of the Connecticut banks would benefit from any cost savings. Moreover, even non-reporting banks are expected to comply with CRA which means they should continue to collect and monitor loan data even though they would not be reporting the data. More than 95% of the cost is based on data collection and maintenance. Reporting the data is only a very small portion of the cost. Thus the benefits are minimal.

On the other hand, there are several very detrimental effects of eliminating the reporting of small business loans by most CRA covered banks. As we mentioned above, even non-reporters still will have the responsibility to show they are meeting the needs for credit services in their communities. One of the prime benchmarks is the market experience reported under CRA. If 90% of the reporting lenders are now relieved of the responsibility to report loans, only the experience of a very few large lenders will be publicly available for comparison. Although there are other demographic factors considered when evaluating performance under the Lending Test, the availability of loan data from a large number of other community bank lenders is a very big help in determining how a community bank is performing under CRA. This valuable benchmark will be lost under the proposed changes. Only data from large lenders will be available and most community banks will have lost a valuable source of comparable data. Finally, it has been our experience that lenders who do not report loan data under CRA often do not take their responsibilities seriously until an exam is pending. The requirement to file loan data is an invaluable reminder to all lenders of the their on-going CRA responsibilities. Relieving a large number of lenders from the minimum responsibility to merely report their loan data will encourage a more lax attitude.

We support the proposed changes in terms of the relief from the investment and service tests but object to the exemption of reporting loans under CRA for many community banks.

Sincerely,