THE REINVESTMENT FUND
September 20, 2004
Mr. Robert E. Feldman
Executive Secretary
ATTN: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 E. 17th Street, NW Washington, DC 20429
RE: MN 3064-AC50, 12 CDFR Part 345
Dear Mr. Feldman:
As a Pennsylvania-based community development financial institution (CDFI). The
Reinvestment Fund urges you to withdraw your proposed changes to the
Community Reinvestment Act (CRA) regulations.
Founded in 1985, The Reinvestment Fund (TRF) has grown to be one of
the nation's largest and most effective community development financial
institutions. TRF's primary service area encompasses a 21-county region
in the states of Pennsylvania, New Jersey, and Delaware, with many of
our financing programs extending well beyond this area to the mid
Atlantic region at large. The primary mission of TRF is to build wealth
and economic opportunity for low-wealth communities and low- and
moderate-income individuals through the promotion of socially and
environmentally responsible development. TRF combines market discipline
with social purpose to apply the now more than $210 million in assets it
manages. Since inception in 1985, TRF has created opportunity and choice
for low-wealth communities and low- and moderate-income individuals in
concrete and measurable ways. During the past 3 years, TRF has:
• created, renovated, or preserved over 3,370 housing units,
• created or retained over 11,460 jobs,
• created, renovated, or preserved over 1.1 million square feet of
commercial space,
• created or preserved over 8,330 charter school slots,
• created or preserved 1,550 child care slots,
• financed 178 businesses, including 21 woman- and 38 minority-owned
businesses,
• conserved 2.5 million kWh in fiscal year 2003 alone,
• and created 32.9 million kWh of clean renewable energy.
The proposed rule change by the FDIC to offer "streamlined" testing
under the Community Reinvestment Act will decrease the availability of
private capital for community development. By weakening the regulatory
incentive for banks to remain responsive to low-and moderate-income
persons, TRF believes the ability of community organizations to provide
affordable housing and community and economic development services will
be adversely affected. TRF objects to the proposed revision that would
change the definition of a "small bank" by raising the asset size
threshold to $1 billion regardless of holding company affiliation.
By altering the definition of a "small bank," banks with $250 million
to $1 billion in assets will no longer be held to current standards of
community responsiveness. The CRA examination for large banks encourages
community investment more strongly than the small bank examination, due
largely to its focus on lending, investment, and service tests, in the
calculation of a bank's CRA rating. Small bank performance under the CRA
is subject to a "streamlined" process that focuses primarily on lending.
The elimination of the investment and service test will remove crucial
measures of community responsiveness from the CRA evaluation for the
large number of banks within the asset range of $250 million to $1
billion.
While TRF acknowledges the addition of a community development
activity criterion for these mid-size banks no longer subject to the
large bank CRA examination, this test would not compensate for the
absence of the investment and service tests for which these institutions
were previously responsible. Allowing these newly-defined "small banks"
to choose among "complex development lending, qualified investments, or
community development services," in the assessment of their CRA rating
will allow banks to focus on only one aspect of their responsibility to
serve community credit needs, leaving gaps in financial services for
low- and middle-income communities.
Since inception, TRF has received substantial funds from banks with
assets greater than $250 million and up to $1 billion. To date,
$10,700,000 of the capital TRF has used to provide services to
underserved communities have come from these mid-size banks;
representing 9 out of the 36 banks that invest wish TRF. While TRF has
900 investors in its investor network, bank investments represent 43% of
the dollar amount of TRF's sources of funds. From this data, it is clear
that banks contribute heavily to the capital TRF utilizes for community
development work. Weakening CRA evaluation methods greatly affects the
impact TRF is able to achieve in its mission to "build wealth and
opportunity for low-wealth communities and low- and moderate-income
individuals through the promotion of socially and environmentally
responsible development."
The incentives provided by the current rating system, which push
banks to respond to the credit needs of the communities in which they
operate, are a driving force behind community development efforts. With
a "streamlined evaluation method" for banks falling under the $250
million to $1 billion asset range, these incentives will decrease banks'
responsiveness to the detriment of low- and moderate-income communities.
The strength of the Community Reinvestment Act comes from its large
retail institution test comprised of the specific lending, investment,
and service tests. The comprehensive nature of this method of evaluation
is what encourages banks to remain responsive to the needs of low- and
moderate-income individuals and communities. Through the incentives
provided by the CRA, banks and community development financial
institutions have formed strong partnerships to meet communities' credit
needs throughout the country. Raising the threshold for "streamlined"
testing under the CRA to banks up to $1 billion in assets will endanger
these partnerships that have enabled CDFIs to leverage limited grants
and government subsidies with private capital to meet communities'
needs.
Sincerely,
Jeremy Nowak
President and CEO, The Reinvestment Fund
CC: Senator Arlen Specter
United States Senate, Pennsylvania
711 Hart Building
Washington, DC 20510
Senator Rick Santorum
United States Senate, Pennsylvania
Washington, DC 20510
