Federal Deposit
Insurance Corporation

From: Carol Wayman [mailto:cwayman@ncced.org]
Sent: Tuesday, September 21, 2004 4:57 PM
To: Comments
Subject: Community Reinvestment -- RIN 3064-AC50

September 21, 2004

Donald E. Powell
Chairman
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429

Mr. Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th St. NW 20429

Re: RIN 3064 AC50: Opposed Proposed Changes to CRA

Dear Gentlemen:

Thank you for the opportunity to comment on the changes the Federal Deposit Insurance Corporation (FDIC) proposes for the Community Reinvestment Act.

We appreciate the FDIC's willingness to thoughtfully discuss investment issues with organizations that work to revitalize low-income communities and consider the effects of any regulatory change on their efforts.

Because the CRA has made the difference between distressed and economically vibrant communities, the National Congress for Community Economic Development (NCCED) places a high priority on ensuring its continued vitality as comprehensive national regulation. For that reason, we oppose the FDIC's proposal to effectively eliminate the investment and services test for banks up to $1 billion in assets and make all rural investments eligible for CRA credit regardless of income level served. NCCED urges you to withdraw the proposal to quadruple the minimum asset size for applying the three-part Community Reinvestment Act (CRA) exam to state chartered non-member banks. We urge the FDIC to retain the current small bank definition ($250 million assets). If enacted as stated in the proposed rule, the FDIC action would have a devastating impact on lending, housing, and access to financial services in urban and rural communities across America.

Founded in 1970, NCCED's mission is to promote, support and advocate for the community-based development industry and work to ensure that the resources required for assisting distressed communities are identified and equitably distributed to help families and individuals achieve lasting economic viability. NCCED works primarily with CDCs and State CED Associations, although our membership includes many types of community-based development organizations such as housing corporations, community action agencies, farm-worker organizations, micro-loan funds, and financial institutions. NCCED encourages and supports its members' work through public policy education, research, special projects, newsletters, publications, training, professional conferences, fund-raising, and technical assistance.

NCCED and our nearly 800 member organizations understand that FDIC proposes four major changes for the vast majority of depository institutions with fewer than $1 billion in assets:

1) Elimination of the investment and service tests;
2) Replacement of the investment and service test with a community development criterion;
3) Elimination of income dependent scoring of community development activities in rural areas; and
4) Elimination of the small business lending data reporting requirement.

Benefits of CRA

The Community Reinvestment Act (CRA) has been and continues to be a critical resource to improve access to credit for low and moderate-income communities and leverage private capital for community development activities in rural and urban areas. CRA is instrumental in increasing access to homeownership, boosting economic development, and expanding small businesses in the nation's minority, immigrant, and low- and moderate-income communities, both urban and rural. CRA increases homeownership, boosts economic development, and expands small businesses in the nation's minority, immigrant, and low- and moderate-income communities.

Impacts of FDIC Proposal

The FDIC 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 totaling $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 local communities and would disproportionately impact rural areas and small cities where the market presence of these mid-sized banks is often great.
According to the FDIC data, the rule change would mean that only 223 of 5,291 (about 4%) 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. We calculate that no FDIC-supervised 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.
Our members strongly believe that the FDIC's plan to add a weak or trivial community development criterion in lieu of the 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, New Markets Tax Credits, Historic Rehab Tax Credits, community service facilities, such as clinics, and economic development projects.
Another harmful element in the proposal is the dramatic weakening of the lending test for midsize banks, which could decrease access to credit for many Americans. Under the proposal banks with assets between $250 million and $1 billion will no longer be subject to the rigorous examination of their mortgage, small business, small farm, and consumer lending. Further, these banks would 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 and small farms, it is impossible for the public to know how well these midsize banks help to meet the credit needs of their local communities.
The elimination of the service test will have harmful consequences for low- and moderate-income consumers. It removes the regulatory incentive for midsize banks to maintain and open new branches and ATM machines serving low-and moderate-income communities. It is also likely to undercut the extent to which these banks provide affordable banking services and checking and savings accounts necessary for bringing unbanked households into the financial mainstream or money transfer and remittance services, which are particularly important to new immigrants and ethnically diverse communities.
In addition, this proposal would broaden the definition of community development in rural areas so that 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 proposal would be particularly harmful to rural counties, which already have fewer banks. Rural counties have 4.3 banks compared to 10.9 banks in urban counties, on average.

We do not believe that any of the proposed changes will improve investment in low- and moderate- income communities in ways that are needed by those communities. While some may argue that the replacement of the investment and service test with a community development criterion will help raise capital for the community development organizations that serve low and moderate income communities, we are concerned such community development organization funds will not be sufficient to replace the current investment and services of banks in low-income and especially rural low-income communities.

Despite the short comment period and its timing at the end of summer, more than 150 of our members have submitted email comments requesting that the FDIC withdraw its proposal because the FDIC rule, as proposed, would greatly weaken or eliminate extremely important standards necessary to ensure that CRA is effective. We urge you to withdraw this proposal.

Sincerely,