Federal Deposit
Insurance Corporation

South Hartford Initiative

October 1, 2004

Mr. Robert E. Feldman
Executive Secretary
Attn: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429 I

RE: RIN 3064-AC50

Dear Mr. Feldman:

As a member of the National Community Reinvestment Coalition, South Hartford Initiative (SHI) urges you to withdraw your proposed changes to the Community Reinvestment Act (CRA) regulations. SHI believes that CRA has been instrumental in increasing homeownership, boosting economic developmept, and expanding small businesses in Hartford, CT, and throughout the nation's minority, immigrant, and low- and moderate-income communities. Your proposed changes are contrary to the CRA statute and Congress' intent because they will slow down, if not halt, the progress made in community reinvestment.

Under current CRA regulations, banks with assets of at least $250 million are rated by performance evaluations that scrutinize their level of lending, investing, and services to low- and moderate-income communities. The proposed changes will eliminate the investment and service parts of the CRA exam for state-charted banks with assets between $250 million and $1 billion. In place of the investment and service parts of the CRA exam, the FDIC proposes to add a community development criterion. The community development criterion would require banks to offer community development loans, investments or services.

The community development criterion would be seriously deficient as a replacement for the investment and service tests. Mid-size banks with assets between $250 million and $1 billion would only have to engage in one of three activities: community development lending, investing or services. Currently, mid-size banks must engage in all three activities. Under your proposal, a mid-size bank can now choose a community development activity that is easiest for the bank instead of providing an array of comprehensive community development activities needed by low- and moderate-income communities.

The proposed community development criterion will result in significantly fewer loans and investments in affordable rental housing, Low-Income Housing Tax Credits, community facilities such as health clinics, and economic development projects.

Your proposal would make 879 state-chartered banks with over $392 billion in assets eligible for the streamlined and cursory exam. In total, 95.7% or more than 5,000 of the state-charted banks your agency regulates have less than $1 billion in assets. These 5,000 banks have combined assets of more than $754 billion. The combined assets of these banks rival that of the largest banks in the United States. Your proposal will drastically reduce, by hundreds of billions of dollars, the bank assets available for community development lending, investing, and services.

SHI exists to help stimulate investment in businesses and housing in Hartford's low and moderate income neighborhoods. These neighborhoods need more bank investment, not less. In 1999, Hartford had the second highest poverty rate of any US city with a population of 100,000 or more. Hartford has made gains in the last 15 years, in part due to the CRA incentive for banks to reinvest in the City. Removing this incentive will be catastrophic for Hartford and other cities with high concentrations of poor people.

The elimination of the service test will also have harmful consequences for low- and moderate-income communities. CRA examiners will no longer expect mid-size banks to maintain and/or build bank branches in low and moderate income communities. Mid-size banks will no longer make sustained efforts to provide affordable banking services, and checking and savings accounts to consumers with modest incomes. Mid-size banks will also not respond to the needs for the growing demand for services needed by immigrants such as low cost remittances overseas.

Banks eligible for the FDIC proposal with assets between $250 million and $1 billion have 7,860 branches. All banks regulated by the FDIC with assets under $1 billion have 18,811 branches. Your proposal leaves banks with thousands of branches unaccountable for placing any branches in low- and moderate-income communities.

Another destructive element in your proposal is the elimination of the small business lending data reporting requirement for mid-size banks. Mid-size banks with assets between $250 million and $1 billion will no longer be required to report small business lending by census tracts or revenue size of the; small business borrowers. Without data on lending to small businesses, it is impossible for the public at large to hold the mid-size banks accountable for responding to the credit needs of minority-owned, women-owned, and other small businesses. Your proposal will decrease access to credit for small businesses, which is directly contrary to CRA's goals.

Lastly, you propose that community development activities in rural areas can benefit any group of individuals instead of only low- and moderate-income individuals. Since banks will be able to focus on affluent residents of rural areas, your proposal threatens to divert community development activities away from the low- and moderate-income communities and consumers that CRA targets. Your proposal for rural America merely exacerbates the harm of your proposed streamlined exam for mid-size banks. Your streamlined exam will result in much less community development activity. In rural America, that reduced amount of community development activity can now earn CRA points if it benefits affluent consumers and communities. What's left over for low- and moderate-income rural residents are the crumbs of a shrinking CRA pie of community development activity.

Instead of your present proposal, SHI urges the FDIC to propose additional community development and data reporting requirements for more banks instead of reducing existing obligations. CRA is too vital to be gutted by regulatory fiat and neglect. If you do not reverse your proposed course of action, SHI and hundreds of organization across the nation will ask that Congress halt your efforts before the damage is done.

Sincerely,
Rex B. Fowler
Executive Director