COMMUNITY REINVESTMENT ASSOCIATION of NORTH CAROLINA
September 21, 2004
Mr. Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th St., NW
Washington, DC 20429
RE: RIN 3064-AC50
Dear Mr. Feldman:
The Community Reinvestment Association of North Carolina (CRA-NC)
submits comments regarding the proposed changes to the Community
Reinvestment Act (CRA) regulations. CRA has been instrumental in
increasing access to homeownership, boosting economic development, and
expanding small businesses in minority and low- and moderate-income
communities. The proposed changes will negatively affect the very
communities that CRA intended to help. We therefore urge the FDIC to
withdraw the proposed changes.
The purpose of CRA, is not to simply prohibit redlining, but to increase
the lending, investments and services into all communities by all banks.
CRA has been successful in increasing lending
to minority and low- and moderate-income communities, which were
historically underserved by banks, while also being profitable for the
banks. The FDIC's proposal to increase the small bank size limit to $1
billion for CRA. exams is a change that undermines the law's purpose,
effectiveness, and ultimately, the dollars reaching low-income
communities.
Nationwide, the proposed changes to raise the large bank threshold
from $250 million to $1 billion would affect 879 banks with more than
$392 billion in assets. In North Carolina, the proposed changes would
affect 25 banks with 312 branches in the state. Collectively, those
banks hold nearly $13.9 billion in assets, making them the sixth largest
bank in the state. If the large bank threshold is raised, these banks
would have less incentive to take an active role in community
development.
Currently, 72 FDIC regulated North Carolina chartered banks have less
than $1 billion in assets, representing nearly 95% of all FDIC regulated
banks in the state. The current small bank exam is extremely limited.
Increasing the number of banks that fall into the small bank category
will
harm community development, particularly in rural areas where small
banks are important in
economic development.
•
Small banks are examined approximately once every five years, meaning
that more banks would be examined less frequently.
•
Evaluation of lending performance often relies on one aspect of
lending. For example, a small bank exam can include an analysis of only
consumer loans or only business loans.
•
Regulators are not required (though they are allowed) to compare the
institution to other lenders in assessment area, even when there is low
loan penetration in a particular geography. However, comparison to the
market is essential in determining performance.
•
There is no detailed
analysis of community development lending or activities. Small banks can
provide leadership and capital to community development. They shouldn't
be exempt from this responsibility.
•
There is no evaluation of the credit needs or opportunities in the
small bank's assessment area, which limits understanding of the context
of the bank's lending.
Current CRA regulations require that large banks with assets of at
least $250 million be evaluated according to their level of lending,
investments, and services to low- and moderate-income communities. Banks
with less than $250 million in assets are held to a much lower standard
and evaluated much less frequently. The proposed changes will eliminate
the investment and service parts of the CRA exam for mid-size, nonmember
state-chartered banks with assets between $250 million and $1 billion.
Its place of the investment dad services tests, the FDIC proposes to add
a community development criterion. The community development criterion
would allow mid-size banks to choose one of three activities: community
development lending, investing, or services. CurrentIy, mid-size banks
must engage in all three activities.
The proposed community development criterion is deficient in assuring
that banks are meeting the needs of their entire community. It will
result in fewer loans and investments in affordable rental housing,
low-income housing tax credit projects, community service facilities,
and economic development projects. The community development criterion
will allow mid-size banks' to demonstrate compliance by making a few
grants or sponsoring homeownership fairs rather than engaging in a
comprehensive effort to provide community development loans,
investments, and services. CRA should encourage banks to be engaged in
authentic community development.
The elimination of the service test will result in fewer branches in
low- and moderate-income areas. Mid-size banks will no loner be expected
to build bank branches in low income communities and will no longer make
sustained efforts to provide affordable banking services and checking
and savings accounts to consumers with modest incomes.
In addition, the proposed elimination of the small business lending
data reporting requirement for mid-size banks will be harmful to
communities. Mid-size banks will no longer be required to report small
business data by census tracts or by the revenue size of the small
business borrowers. Without data on lending to small businesses, it will
be impossible to hold mid-size banks accountable for responding to the
credit needs of small businesses. Disclosure has increased access to
credit for small businesses because it allows communities to hold banks
accountable for their performance. The FDIC proposal would reduce access
to credit — a step backwards.
The FDIC proposal that community development activities in rural
areas can benefit any group of individuals instead of only low- and
moderate-income individuals is unconscionable. In rural areas, banks
should be engines of economic and community development. It does not
make sense to take away an incentive for banks to be engaged in work
that benefits low- and moderate income individuals and communities. The
FDIC proposal threatens to divert community development activities away
from low-income communities to activities that benefit affluent
individuals and communities. Banks should not receive CRA, credit for
activities like building private golf courses or expensive homes in
rural areas. The FDIC's proposal for mid-size banks will result in less
community development in rural areas.
The FDIC's proposal is antithetical to CRA's statutory mandate of
imposing a. continuing and affirmative obligation to meet community
needs. It will dramatically reduce community development lending,
investing, and services. It will harm communities and limit economic
development, particularly in rural areas. Rather than weaken CRA., the
FDIC should strengthen it by increasing requirements for community
development and data reporting. Allow CRA to do what it was intended to
do -. benefit the community.
Sincerely,
Peter Skillern Executive Director
Community Reinvestment Association of North Carolina
114 West Parrish St
Durham, NC 27702
