Federal Deposit
Insurance Corporation

October 19, 2004

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

RE: RIN 3064-AC50

Dear Mr. Feldman:

This letter is written in response to Notice of Proposed Rulemaking and request for comments by the Federal Deposit Insurance Corporation (FDIC) relative to changes to the definition of a “small bank” under 12 CFR 345, the FDIC’s regulations implementing the Community Reinvestment Act (CRA). The Division of Banks (Division) appreciates the opportunity to comment on the proposed regulations. The Division is the chartering and supervisory agency for nearly 300 state-chartered banks and credit unions in Massachusetts with combined assets of approximately $200 billion.

Comment on Proposed Changes
By way of background, the Division has examined state-chartered institutions for compliance with the Community Reinvestment Act (CRA) since 1980. The Massachusetts CRA statute, General Laws chapter 167, §14 and its implementing regulations 209 CMR 46.00 et seq. parallel the federal CRA regulations (12 CFR 345).

The Division supports the intent of the proposed changes; namely, to provide regulatory relief to small community financial institutions who must comply with the same regulations as large complex institutions. Unfortunately, movement away from a single definition of “small bank” by the federal regulators, including the proposed definition, have resulted in multiple and competing definitions of “small bank” and multiple measures of performance depending on the charter of the institution. The Division believes that such differences will only increase, rather than decrease regulatory burden on the industry. An evaluation of a bank’s CRA lending performance should be based on the size and complexity of the institution, its product offerings and business strategy, and the community it serves – not on the basis of the bank’s charter. The best way to provide regulatory relief is to develop a uniform standard among the four federal regulators. In fact, one of the purposes of the Federal Financial Institutions Examination Council (FFIEC) is to “promote uniformity in the supervision of financial institutions” . The Division believes that the FDIC is in a unique position, as the insurer of both state and federally chartered institutions, to bring the regulatory agencies together to produce a single definition and a single measurement of performance. Without such uniformity, the agencies risk creating both confusion and burden on the industry. Furthermore, in states such as Massachusetts which have their own CRA regulatory system, there is a real risk to the dual banking system by creating inconsistent standards. Additionally, varied performance measurements could adversely impact some institutions by having them treated differently by state or municipal programs which direct funds or relationships based on a bank’s CRA performance.

Another Proposal for Regulatory Relief
While not directly related to the proposed changes, the Division would like to take this opportunity to suggest a means to provide certain regulatory relief to state-chartered nonmember banks.
As mentioned above, the Division conducts CRA examinations of all state-chartered institutions, as well as examinations for consumer compliance and fair lending. In many respects, the Massachusetts CRA regulations are more expansive than the federal regulations. For example, the Massachusetts CRA contains no exemption for special-purpose banks and it covers uninsured branches of foreign banks as well as credit unions.

In addition, the Commonwealth of Massachusetts has had an exemption from the relevant federal provisions of Truth in Lending for over 30 years. Therefore, the FDIC does not examine for compliance with Truth in Lending in Massachusetts. Besides Truth in Lending, the comparable provisions of Massachusetts law for Truth in Savings and Electronic Fund Transfers are more protective to consumers than federal law. Because the Division examines for compliance with all state and federal consumer protection laws and regulations, our examination reports are more comprehensive than those of the FDIC which do not include compliance with Truth in Lending or any State consumer protection provisions. Further, the Division’s examiners receive training from the FDIC and the Federal Reserve in federal consumer protection laws and regulations, making our examination policies and procedures nearly identical to the federal regulators in these areas. For all of the above reasons, the National Credit Union Administration has relied upon the Division’s CRA and Consumer Compliance examination reports in place of their own compliance examination program for all state-chartered credit unions in Massachusetts for over 10 years.

However, since the FDIC does not accept the Division’s CRA or Consumer Compliance examination reports and because state-chartered banks in Massachusetts are subject to CRA and Consumer Compliance examinations from both the Division and the FDIC, Massachusetts banks are subject to examinations twice as often as national banks and federal thrifts and other state-chartered banks. The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (GLB) included a clear intention to provide regulatory relief to small institutions (under $250 million). By extending the CRA examination schedule to four or five years depending on the rating, Congress hoped to lessen the regulatory burden on small depository institutions. Although it is under no statutory obligation, the Division has adopted this same schedule for its CRA examination cycle. The Division now conducts a full-scope Consumer Compliance Examination every two to three years with a CRA examination conducted concurrently with Consumer Compliance every other examination.

It also is the Division’s understanding that the FDIC conducts an interim Compliance examination between its full CRA and Consumer Compliance examinations. The Division questions whether what, in effect, equals an annual examination for small banks is truly a reduction in regulatory burden in the spirit of GLB. In addition, the Division has serious concerns on the competitive burden for state-chartered small banks subject to an examination every 12 months.

Proposed Solution
As a way to reduce regulatory burden on state-chartered banks in Massachusetts, the Division proposes that the FDIC adopt, on a pilot basis, an alternating examination cycle with the Division’s CRA examination cycle similar to the alternating examination program for safety and soundness examinations. In addition, since Massachusetts is exempt from the provisions of Truth in Lending and because of the comprehensive nature of the Division’s Consumer Compliance examinations, the Division urges the FDIC to accept the Division’s full-scope Consumer Compliance examination reports in lieu of the FDIC’s interim compliance visitations. As stated in previous correspondence to the FDIC, it is the Division’s belief that the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 and the Riegle Community Development and Regulatory Improvement Act of 1994 authorize the FDIC to cooperate with State supervisory agencies and to accept examination reports by State bank supervisors.

The New York Region of the FDIC would be ideally suited to conduct such a pilot program since the two other states in the country that have full CRA examination programs, Connecticut and New York, are both within the New York Region . The Division believes that an alternating examination program for CRA and the acceptance of the Division’s Consumer Compliance examination reports in lieu of interim compliance visitations would provide a direct relief to state-chartered banks, as they would not be subject to examinations more frequently than federally chartered banks.

Thank you again for the opportunity to comment on the proposed rule. If you have any questions, please free to contact me at (617) 956-1500, extension 510 or David J. Cotney, Senior Deputy Commissioner at extension 542.

Very truly yours,
Steven L. Antonakes
Commissioner of Banks

cc: J. Reich, Vice Chairman, FDIC & Chairman, EGRPRA Interagency Taskforce
N. Milner, President, Conference of State Bank Supervisors