Federal Deposit
Insurance Corporation

September 16, 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 of Ozaukee Bank, located in Cedarburg, Wisconsin. Our small community has a population of 11,200. We serve Ozaukee County with offices in four other small communities of similar population. Our bank has assets of $590 million and is already subject to the large bank CRA examination.

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 ours under the current regulation, which are required to meet the standards imposed on the nation's largest $1 trillion banks. I understand that this is not an exemption from CRA and that Ozaukee Bank would still have to help meet the credit needs of its entire community and be evaluated by my regulator. However, I am certain this would reduce our current regulatory burden by approximately 40 man hours and the associated costs. We currently have a couple staff people assembling small business loan data and e-mailing it to our CRA Officer. He then has a technology person help to transport the data into a software program, CRA Wiz. We also have to document our efforts to meet the Service and Investment tests that are the other components of our CRA examination criteria.

I also support the addition of a community development 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 thresholds 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 the intent of Congress when it enacted CRA. In our last CRA public evaluation dated September 30, 2002, the examiners stated that "qualified investments are considered adequate given the limited opportunity available within the assessment area."

An additional reason to support the FDIC's CD criterion is that it significantly reduces the current regulation's "cliff effect." 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 examination.

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 will be happy to discuss these issues further with you, if that would be helpful.

Sincerely,

Dean W. Fitting
President