BANK OF ELMWOOD
September 27, 2004
Mr. Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Re: RIN Number 3064-AC50: FDIC Proposed Increase in the Threshold for
the Small Bank CRA Streamlined Examination
Dear Sir or Madam:
I am Sharon M. King, Senior Vice President and CRA Officer of Bank of
Elmwood, a community bank whose main office is located in Racine,
Wisconsin. Racine’s population is approximately 82,000 and its race
composition is 20% African Americans, 14% Hispanics, and 64% White. The
asset size of Bank of Elmwood at this time is $243 Million. Our Bank
recently received a CRA rating of Outstanding, our third consecutive
rating of Outstanding. I am writing to strongly support the FDIC’s
proposal to raise the threshold for the streamlined small bank CRA
examination to $1 billion without regard to the size of the bank’s
holding company. This would greatly relieve the regulatory burden that
will soon be imposed on my bank and other small banks such as my own
under the current regulation, which is required of the nation’s largest
$1 trillion banks. I understand that this is not an exemption from CRA
and that my bank would still have to help meet the credit needs of its
entire community and be evaluated by our regulator. I believe that
should the Bank of Elmwood have to conform to the requirements of large
banks, it would require us to turn our efforts toward cumbersome
documentation and additional expenses that would prevent us from
continuing to deliver the outstanding service that we currently are
providing to the markets that we serve.
I also support the addition of a community development criterion to
the small bank examination for larger community banks. It appears to be
a significant improvement over the investment test. However, I urge the
FDIC to adopt its original $500 million threshold for small banks
without a CD criterion and only apply the new CD criterion to community
banks greater than $500 million up to $1 billion. Banks under $500
million now hold about the same percent of overall industry assets as
community banks under $250 million did a decade ago when the revised CRA
regulations were adopted, so this adjustment in the CRA threshold is
appropriate. As FDIC examiners know, it has proven extremely difficult
for small banks, especially those in rural areas, to find appropriate
CRA qualified investments in their communities. Many small banks have
had to make regional or statewide investments that are extremely
unlikely to ever benefit the banks’ own communities. That was certainly
not intent of Congress when it enacted CRA.
An additional reason to support the FDIC’s CD criterion is that it
significantly reduces the current regulation’s “cliff effect.” Today,
when a small bank goes over $250 million, it must completely reorganize
its CRA program and begin a massive new reporting, monitoring, and
investment program. If the FDIC adopts its proposal, a state nonmember
bank would move from the small bank examination to an expanded but still
streamlined small bank examination, with the flexibility to mix
Community Development loans, services, and investments to meet the new
CD criterion. This would be far more appropriate to the size of the
bank, and far better than subjecting the community bank to the same
large bank examination that applies to $1 trillion banks. This more
graduated transition to the large bank examination is a significant
improvement over the current regulation.
I strongly oppose making the CD criterion a separate test from the
bank’s overall CRA evaluation. For a community bank, CD lending is not
significantly different from the provision of credit to the entire
community. The current small bank test considers the institution’s
overall lending in its community. The addition of a category of CD
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 CD obligation and regulatory
burden that would erode the benefit of the streamlined exam.
In conclusion, I believe that the FDIC has proposed a major
improvement in the CRA regulations—one that much more closely aligns the
regulations with the Community Reinvestment Act itself. I urge the FDIC
to adopt its proposal, with the recommendations stated above. Should you
wish to further discuss this issue, please feel free to contact me via
telephone or Email.
Sincerely,
Sharon M. King, Sr. Vice President & CRA Officer
Bank of Elmwood
2704 Lathrop Avenue
Racine, WI 53405
Phone: 262-554-5815
Email: sking@bankofelmwood.com
