Federal Deposit
Insurance Corporation

Missouri Bankers Association
207 E. Capitol Ave.
Jefferson City, MO 65102

October 20, 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 of the Small Bank CRA Streamlined Examination.

Dear Sir:

This letter is being written as a result of the request for comment by the Federal Deposit Insurance Corporation on the 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. These comments are being submitted on behalf of almost 400 Missouri banks and savings and loan associations by the Missouri Bankers Association (MBA), a Missouri trade association.

The members of the MBA strongly support this proposal because it would greatly relieve the regulatory burden imposed on many small banks which are currently required to meet the standards imposed on the nation’s largest $1 trillion banks. This proposal rule would greatly decrease the regulatory burden through a decrease in the amount of man-hours and costs incurred to ensure compliance.

The members of the MBA also support the addition of a community development criterion to the small bank examination for larger banks. It will be a significant improvement over the investment test, which has always been extremely problematic for small banks. However, the MBA strongly urges 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 threshold is appropriate. By not focusing on the type of activity (loan, service or investment) but instead focusing on whether the combination results in community development, the FDIC aids bankers in flexibly meeting the entire community’s credit needs. As FDIC examiners are well aware, it has proven extremely difficult for small banks, especially those in rural areas, to find appropriate CRA qualified investments in their communities. This proposal will go a long way to ending CRA’s requirement that forces many small banks to make regional or statewide investments that are extremely unlikely to ever benefit the banks’ own communities. This was certainty not intent of Congress when it enacted CRA.

An additional reason to support the FDIC’s CRA criterion is that it significantly reduces the current regulation’s “cliff effect” by creating a mid-tier CRA bank exam. 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 (CD) 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 that 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.

The members of the MBA are in strong opposition to 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 Community Reinvestment Act is not about a particular form or recipient of lending, but is clearly about providing credit to the entire community. The current small bank test does just that; it considers the institution’s overall lending in its community as required by law. That is why the current small bank test is so valid. The test considers the institution’s loan-to-deposit ratio; the percentage of loans in its assessment areas, its record of lending to borrowers of different income levels and businesses and farms of different sizes; the geographic distribution of its loans; and its record of taking action, if warranted, in response to written complaints about its performance in helping to meet credit needs in its assessment areas.

The addition of a category of CD lending fits well within the concept of serving the whole community. However, a separate test would create an additional CD obligation, not contained in the statute, and regulatory burden that would erode the benefit of the streamlined exam. A separate test would also likely become a focal point for continuous criticism by CRA activists, since that is where their grants and donations will be counted. In addition, a separate test would also raise the difficult question of how much weight in the examination should be placed on just one category of community lending. Such question would include: Are CD loans worth twice as much as loans to businesses in the community? Are they less than such loans? These are not questions that should be asked by regulators.

Specifically, members of the MBA who have rural assessment areas strongly support the FDIC’s proposal to change the definition of “community development” from only focusing on low-and-moderate-income area residents to include rural residents. The MBA recognizes that the current CRA definition of “community development” has a strong urban focus. As a result, there are often very few opportunities for rural community banks to provide qualified CRA loans, investments or services. In reviewing the CRA Performance Evaluations of rural community banks, one can often expect to find examination findings indicating the bank’s level of purchasing qualifying community development debt or equity investments to be sufficient due to the limited opportunities in their assessment area. It is apparent that this is now standard language for examiners. The enlargement of the definition of “community development” to include rural residents will go a long way toward eliminating the current distortions in the regulations. However, the MBA cautions 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, the MBA favors the adoption of the proposed rule, with the recommendations above, because it is a major improvement in the CRA regulations, and much more aligns the regulations with the Community Reinvestment Act itself.

Thank you for the opportunity to comment on the above proposed rule. If I can be of additional assistance, please let me know.

Sincerely,

Max Cook
President