CENTRAL STATE BANK
From:
Cindy Rusch [mailto:Cindy.Rusch@centralstate.com]
Sent: Tuesday, October 05, 2004 9:55 AM
To: Comment
Cc: 'psmith@aba.com'
Subject: RIN No. 3064-AC50
October 4, 2004
Mr. Robert E. Feldman, Executive Secretary
Attn: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th St NW
Washington, DC 20429
RE: RIN Number 3064-AC50
Dear Mr. Feldman:
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 imposed on many
small banks such as my own under the current regulation, which are
required to meet the standards imposed on the nation’s largest
$1 trillion banks.
I am President of Central State Bank in Muscatine, Iowa, a community
in rural Iowa with a population of 23,000. Central State Bank is
$265 million in assets and has been subject to the large-bank CRA
examination for the past several years. We are in the midst of our
first large-bank CRA examination. I am also President of a small
four-bank holding company, which in addition to Central State Bank
includes a $175 million bank in Galesburg, Illinois, a central Illinois
community of 33,000 people; a $38 million bank in Washington, Iowa,
a small town of 5,000 residents; and an $85 million bank in Iowa
City, Iowa.
This proposal
will greatly alleviate unnecessary paperwork and examination burden
without
weakening our commitment to reinvest in our communities.
Reinvesting in our communities is something we do every day as a
matter of good business. Our banks will not long survive if our local
communities don’t thrive, which means that our banks must be
responsive to community needs and promote and support community and
economic development.
We believe so
strongly in our responsibility to each community we serve that
we have maintained
separate charters with local Boards
of Directors in each of these communities, even though they are all
within 75 miles of our headquarters, and some of them are only 20
miles away. We are committed to serving those communities regardless
of regulatory requirements. I understand that
this proposal is not an exemption from CRA and that our banks would
still have to help meet the credit needs of the community they
serve and be evaluated by our regulator. The only thing that would
change is the regulatory burden. Central State Bank’s large-bank
examination has increased our regulatory burden by 1,000 hours
per year and additional costs of approximately $25,000; money and
time that benefits no one.
I do not support the addition of a community development criterion
to the small-bank examination for larger community banks. As our
examiners know, it is extremely difficult for small banks like Central
State Bank to find appropriate CRA qualified investments in their
communities. Central State Bank has made a statewide investment in
a low-income housing tax credit pool to attempt to meet our requirement
under this part of the regulation. None of the low-income projects
are within 50 miles of our community. This was certainly not the
intent of Congress when it enacted CRA.
If the FDIC feels it is necessary to adopt the new community development
criterion, I strongly urge the threshold to be set at $500 million
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.
Again, while
I oppose the CD criterion, it would be better than Central State
Bank’s
current large- bank regulation. I agree that the current proposal
with the CD criterion would provide for
an expanded, but still streamlined, small-bank examination with the
flexibility to mix community development loans, services, and investments
to meet the new criterion. This would be far more appropriate than
subjecting small banks under $1 billion to the same large bank examination
that applies to $100 billion, $300 billion, or $1 trillion banking
organizations with branches over 5, 10, or 40 states. (Central State
Bank has branches only in Muscatine, Iowa.)
If the CD criterion
is to be added, I strongly oppose making it 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 overall lending in its community.
A separate test would create an additional CD obligation and regulatory
burden that will erode the benefits of the streamlined examination.
We recently purchased two locally arranged bonds issued by the City
of Muscatine. These are not general obligation bonds, but are repayable
solely from tax increments in two TIF districts in our community.
In one case, the proceeds are being used to clean up our Mississippi
Riverfront and, in the other case, the funds are being used to construct
a new airport facility. These are projects the majority of our citizens
wanted done and were individually voted on and approved by our local
City Council. This is community development, supporting the needs
of our local citizens. Under the current large-bank regulation, these
do not qualify as community development lending.
I strongly support
the FDIC’s proposal to change the definition
of “community development” from only focusing on low
and moderate-income area residents to including rural residents.
As a rural bank, we are frequently called upon to support needed
economic or infrastructure development (such as those mentioned above)
or make loans that help create needed or better paying jobs. We are
currently the largest agricultural lender within 50 miles. Most of
these loans are to farmers and agri-businesses that have total annual
revenue under $1 million. This represents the core or base of our
economy.
The FDIC’s proposed changes to CRA are needed to help alleviate
regulatory burden. Without changes such as these, more and more community
banks like mine will find they cannot sustain independent existence
because of the crushing regulatory burden and will opt to sell out.
I am sure you do not believe that the elimination of hundreds or
even thousands of community banks with the resultant network of large
bank branches will improve the economic vitality of any community.
Think of the volume of regulatory burden that has been added to banks
in the short 4 ½ years of the 21st century. When the rare
opportunity comes along to reduce the regulatory burden without jeopardizing
the safety and soundness of the system or without a detrimental impact
to our communities (this is all about reducing paperwork, not our
responsibility to our communities), action should be taken. By easing
regulatory burden, it will make it easier for community banks like
mine to continue to provide committed service to local communities
that few other financial service providers are willing to do.
Sincerely,
Dennis H. McDonald
President
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