Federal Deposit
Insurance Corporation

October 7, 2004

Mr. Robert E. Feldman, Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
comments@fdic.gov

RE: RIN #3064-AC50

Dear Mr. Feldman:

I write on behalf of the Nebraska Bankers Association (NBA) to express support for the FDIC’s proposal to raise the threshold for the streamlined “small bank” CRA examination without regard to the size of the bank’s holding company. The NBA is a trade association representing 257 of Nebraska’s 259 commercial banks and 9 of the 16 savings and loan institutions in the state of Nebraska.

The FDIC proposes to increase the asset threshold from $250 million to one billion and to eliminate any consideration of whether the small bank is owned by a holding company. This proposal represents a significant positive change in implementing the Community Reinvestment Act and should greatly reduce regulatory burden on banks which will become eligible for the small institution examination. We commend the FDIC for proposing the expansion of the number of banks that will qualify for examination under the streamlined CRA process, as it is well known that small banks incur a disproportionately high regulatory cost when subjected to the large retail bank exam.

The NBA also supports the addition of a community development criterion to the small bank examination for larger community banks. However, we would urge the FDIC to adopt its original $500 million dollar threshold for small banks without imposing the new community development criterion and only apply the new community development criterion to community banks with assets between $500 million and $1 billion. Banks under $500 million in assets now hold about the same percentage of overall industry assets as community banks under $250 million did a decade ago when the revised CRA regulations were adopted, so this adjustment to the CRA threshold would be appropriate. As FDIC examiners are aware, it is 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 in order to satisfy this requirement. This was certainly not the intent of Congress in enacting the CRA.
An additional reason to support the FDIC’s community development criterion is that it significantly reduces the current regulation’s “cliff effect.” Currently, when a small bank exceeds the over $250 million asset threshold, it must completely reorganize its CRA program and begin a massive new reporting, monitoring and investment program. If the FDIC adopts its proposal with the revisions suggested above, qualifying banks 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 community development criterion. This would be far more appropriate to the size of the bank, and far better than the current rule of subjecting community banks to the same large bank examination that applies to the nation’s largest banks. This more graduated transition to the large bank examination is a significant improvement over the current regulation.

I strongly oppose making the Community development criterion a separate test from the bank’s overall CRA evaluation. For a community bank, community development 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 community development lending (and services to aid lending and investments as a substitute for lending) fits well within the concept of serving the whole community.

We also support the portion FDIC’s proposal to change the definition of “community development” from only focusing on low- and moderate-income area residents to including rural residents. This modification in the definition will go a long way toward eliminating the current distortions in the regulation. We would caution the FDIC to provide a definition of “rural” that will not be subject to misuse to favor just affluent residents of rural areas.

In conclusion, we would strongly support the increase in the asset size of banks eligible for the small banks streamlined CRA examination process as a vitally important step in revising and improving the CRA regulations and in reducing regulatory burden. We also support eliminating the separate holding company qualification for the small bank examination, since it places small community banks that are part of a larger holding company at a significant disadvantage vis-à-vis their peers and has no legal basis in the act. We would urge the FDIC to adopt its proposal, with the recommendation set forth above. We would be happy to discuss these issues further with you, if that would be of assistance.

Sincerely,
George Beattie
President
NBA
233 South 13th St.
Lincoln, NE 68508