Federal Deposit
Insurance Corporation

October 5, 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 Mr. Feldman:

I am President and CEO of United Community Bank of Lisle, Lisle, Illinois. We are a growing, state-chartered Fed-member bank. Our one-bank holding company, United Financial Holdings, Inc., enjoys a wide ownership by various members of our community. At year-end 2003, our total assets were $211 million and we presently meet the definition of a “small bank” pursuant to the Federal Reserve’s CRA regulations. During 2004, we have grown to more than $250 million in assets. As we are right on the cusp of being evaluated as a large bank for CRA purposes, we have followed the regulatory debate regarding CRA thresholds with keen interest.

While we are not directly subject to the FDIC’s regulation in this matter, 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. Hopefully, the Federal Reserve will follow the FDIC’s lead in this regard. The FDIC’s proposal would greatly relieve the regulatory burden imposed on many small banks such as my own under the current regulation. These smaller institutions are presently required to meet the standards imposed on the nation's largest $1 trillion banks. We understand that this is not an exemption from CRA and that such banks would still have to help meet the credit needs of their entire community and be subject to regulatory evaluation. However, I believe that this would lower the current regulatory burden significantly. One of the reasons we made the word “Community” a part of our name was to reflect our strong commitment to that community. We are proud of our record of community reinvestment and, consistent with safe and sound operation of the bank, we will continue to meet the credit needs of our entire community, including low- and moderate-income neighborhoods, no matter what the regulatory framework requires. I further believe that we are not alone – a positive attitude and commitment to community support pervades the industry. This is particularly true of banks under $1 billion, as these institutions largely rely on their communities for their very existence. FDIC Chairman Powell recently highlighted the two-tier nature of the banking industry. Community banks of all sizes will continue to support their communities, not only out of a sense of duty, but because doing so is the linchpin of their business model.

I also support the addition of a community development (CD) 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." Our institution is perched on that cliff even as we speak. 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, and I urge the FDIC to adopt its proposal, with the recommendations above. I would be happy to discuss these issues further with you, if that would be helpful.

Sincerely,

James I. McMahon
President/CEO