BANK OF AMERICAN FORK
Robert E. Feldman, Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
September 17, 2004
RE: 12 CFR 345 Comments
RIN number 3064-AC50
Dear Mr. Feldman
Bank of American Fork supports the following:
We support the proposed change to increase the size of the bank to
$1 billion in order to be considered under the small bank CRA
examination.
We further support adding the community development criterion to the
streamlined evaluation for small banks with assets greater than $250
million and less than $1 billion. Ideally, we would like the community
investment test be eliminated under the small bank examination
procedures.
In addition, we support expanding the community development definition
to encompass a broader range of activities in rural areas.
BAF has supported and will continue to support small farm, small
business community development lending to all qualified borrowers.
We have always felt that the small bank definition should include all
banks under $1 billion in assets. Small banks have to ensure they are
serving all segments of their community, i.e., low, moderate, middle and
high income census tracts, in order to survive. Community banks are
closer in touch to all members of the community when compared to large
banks, non-bank banks, etc. Our assessment area covers some rural areas
and we do limited lending outside our assessment areas that are rural by
definition. We recognize the need to help the small farm and small
business operation in order for our local and national economy to
succeed. Furthermore, it is critical to the future of our children to
provide opportunities to start small farm and small business operations.
Small farm and small business operations are critical to the success of
the free enterprise system in our country. Regardless of income status,
i.e., low, moderate, middle and high income, lending should be available
based on the credit worthiness of the applicant
The cost of operating a CRA department under the current large bank
definition is prohibitive. We hope that, with the new CRA definition,
some of the documentation burden will be eliminated. Such a reduced
workload would help our bank spend the same amount of time lending to
community development projects, lending to low and moderate income
borrowers, etc., as always without the excess analysis and documentation
requirements. We could then better use our CRA officer’s time to conduct
risk management analysis to ensure our bank is safe and sound without
undue burden of analysis and documentation. This reduction in analysis
and documentation will allow at least 15-20 hours a month to be directed
toward risk analysis, loan review, compliance and other responsibilities
that are critical for our bank’s survival. This would translate to
shifting $10,000 to $15,000 in financial resources, for a small
community bank of our size, toward more productive areas like risk
management analysis that is so critical in our ever changing world of
security intrusion, fraud, terrorism, etc.
The proposal does add a new community development criterion for the
small bank examination standards for banks between $250 million and $1
billion. This criterion requires evaluation of one or more of the bank’s
community development activities (CD lending, services and/or
investments), with the mix to be determined by the opportunities present
in the community and the bank’s own strategic strengths. However,
because of significant, coordinated opposition from CRA activist groups,
including orchestrating a letter from 31 Senators to the heads of the
banking agencies strongly opposing any increase in the small bank
threshold, the FDIC has sought a compromise (this is a major concern of
CRA activists, since donations by banks to them often count towards the
investment test). This compromise is the new Community Development (CD)
factor in the small bank evaluation for banks between $250 million and
$1 billion. In our opinion, banks will still make prudent contributions
toward community development investments if they are safe and sound and
meet the bank’s strategic investment goals. For our bank, we are
focusing our efforts, and will continue to focus our efforts, on lending
to community development projects that target low and moderate income
individuals.
CRA activists do have their own agenda and it may be self-serving
rather than truly serving the needs of low-and moderate-income
individuals. Where does most of the money come from to fund non-profit
organizations? Banks of course. There is undue pressure for banks to
give out money. Banks are an easy target since businesses and credit
unions are not under the same pressure to comply with CRA.
All of the Agencies originally proposed raising the small bank
threshold to $500 million, without any CD test. We suggest that ABA urge
the FDIC to retain that part of their original proposal, because the
banks under $500 million are most severely overburdened by excessive
regulation and most are in areas with only limited CRA investment
opportunities. We would then support the increase of the small bank
threshold to $1 billion with an additional CD test, for banks over $500
million in assets as a significant improvement in the current CRA
regulations and as a much improved "investment test" component.
The FDIC specifically requests comments on whether the new CD
criterion should be a separate test in addition to the small bank
standard. If such a test should be added, how should CD activities be
weighted with the small bank performance standard in assessing overall
CRA performance? We oppose a separate test, for several reasons.
First, such a separation creates the impression that CD lending is
separate from the provision of credit to the entire community, which is
the stated standard under the Community Reinvestment Act. The current
small bank test looks primarily at lending – as required by the law. The
current 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. A separate test would create an additional CD obligation. It
could then become a focal point for criticism from CRA activists, since
that is where their grants and donations will be counted.
Second, the difficult question of how much weight in the examination
should be placed on just one category of community lending would
continue to distort the CRA examination process. Creation of a CD test
will put CD loans, CD investments, and CD services into the same test,
which raises the question of how to rate the equivalency of loans versus
investments versus services.
Changing The Definition of Community Development
All of the Agencies originally proposed raising the small bank
threshold to $500 million, without any community development test. We
suggest the FDIC retain that part of their original proposal, because
banks under $500 million are most heavily overburdened by excessive
regulation and most are in areas with only limited CRA investment
opportunities. We would support the increase of the small bank threshold
to $1 billion with an additional community development test for over
$500 million banks as a significant improvement in the current CRA
regulations and as a much improved “investment test” component. Ideally,
we would want to see the community development test eliminated
altogether for banks with assets under $1 billion, it is still a burden
to collect and analyze the data under the ‘investment test”
requirements.
The addition of a category of community development lending (and
services to aid lending and investments as a substitute for lending)
fits well within the concept of serving the whole community. A separate
test would create an additional community development obligation, not
contained in the statue, that would take on a life and emphasis of its
own separate from, and in addition to, lending to the entire community.
It could then become a focal point for criticism from CRA activists,
since that is where their grants and donations will be counted. The
difficult question of how much weight in the examination should be
placed on just one category of community development lending would
continue to place an imbalance on the CRA examination process. Creation
of a community development test will put community development loans,
community development investments, and community development services
into the same test. The question becomes, how do you rate the
equivalency of loans versus investments versus services. Would community
development lending be weighed twice as much, one half as much, or some
other percentage as the investment test? We believe there should be
simply a community development lending test and eliminate the community
development investment test. Community development investment test was
never considered within the original CRA regulation. Community
development investments are limited and are a burden to monitor.
Sincerely,
Dale O. Gunther
President and CEO
Bank of American Fork
