Smith River Community Bank
October 5, 2004
Via e-mail – comments
@FDIC.gov
Mr. Robert E. Feldman, Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429
Re: RIN 3064-AC50
Community Reinvestment Act (CRA)
Dear Mr. Feldman:
I am writing
on behalf of Smith River Community Bank, N.A. to comment on the
FDIC’s proposed changes to its CRA regulation. We applaud
the FDIC’s proposal to raise the definition of “small
Bank,” for purposes of determining those banks eligible for
the streamlined examination standards, from $250 million in assets
to $1 billion in assets regardless of holding company affiliation.
We believe the arguments in support of such a change are compelling,
and urge the FDIC to finalize its proposal at the earliest possible
time.
We stress that community banks in Virginia, many of which are state
nonmember banks, are under enormous regulatory strain. New requirements
under the USA Patriot Act and the Sarbannes-Oxley Act have pushed
the overall burden on such banks to a new high. This burden hits
our community banks particularly hard, as they simply do not have
the resources available to address compliance that the large banks
have. In light of this compliance burden, we believe the FDIC should
remain ever vigilant in reducing the burden whenever it can. CRA
is an area where the FDIC can, and should, reduce the burden on small
banks.
In this regard, community banks subject to the large bank exam
standards under CRA have had the greatest compliance challenges of
all banks. As indicated, they do not have the resources to devote
to the detailed CRA administrative requirements that larger banks
do, and yet are subject to the very same standards. Increasing the
threshold for streamlined exam eligibility would benefit these banks
significantly, without in any way affecting their CRA lending.
In particular, Virginia Community Banks, by the very nature of
their business, are lending to all segments of the communities they
serve. CRA loans are an important part of our business.
Changing the
definition of “small bank” recognizes
the significant institutional growth that has taken place since the
current $250 million threshold was established in 1995. Indeed, the
number of institutions defined as “small banks” has declined
by over 2,000 since the threshold was set in 1995, and their percentage
of industry assets has declined substantially. Moreover, much asset
growth since 1995 has been due to inflation, not real growth. Thus,
the proposed increase in the threshold is warranted simply based
on institutional growth and inflation.
It is also justified
because small banks can simply not compete against large banks
for qualified investments in their communities.
The large bank test, with its investment component, simply doesn’t
work for community banks.
Finally, we note that increasing the threshold to $1 billion will
not impact vast majority of bank assets, which, because they are
held by large institutions, will still be subject to the full CRA
examination process. But it will relieve smaller institutions of
unnecessary and, we believe, inappropriate regulations. Again, the
cost of compliance for institutions just above the current threshold
is disproportionately high relative to institutions above the threshold.
The FDIC is right to address this by increasing the threshold to
$1 billion.
We do not believe, however, that the FDIC should adopt a community
development criterion for institutions between $250 million and $1
billion. Such criterion would create regulatory burden without adding
any countervailing benefit in assessing how a bank is doing in meeting
the credit needs of low to moderate income individuals in the communities
it serves.
In summary, we commend the FDIC for pursuing the right course on
this issue. Our community bank members are incurring significant
costs in CRA compliance that many of their competitors (e.g., credit
unions) are not. Making CRA easier for our community banks by reducing
unnecessary administrative requirements will ease compliance burdens
(while in no way affecting CRA lending) and thereby allow them to
compete more effectively in the marketplace. We appreciate the opportunity
to comment.
Sincerely,
C. R. McCullar
President and CEO
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