Federal Deposit
Insurance Corporation

From: Michael Lane [mailto:michaell@selfhelpenterprises.org]
Sent: Tuesday, October 19, 2004 5:42 PM
To: Comments
Subject: RIN Number 3064-AC50
September 17, 2004

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

RIN Number 3064-AC50

Dear Mr. Feldman:

As CEO of the oldest and largest nonprofit developer of affordable self-help housing in the nation, I write in adamant opposition to the Federal Deposit Insurance Corporation (FDIC’s) proposed changes to the regulations governing the Community Reinvestment Act (CRA). In particular, I believe raising the asset threshold for small banks from $250 million to $1 billion will severely weaken the CRA and undermine partnerships that community development organizations such as ours have developed with banks. In addition, the new FDIC proposal would not require CRA community development activity to be directed solely to low- and moderate-income individuals in rural areas but rather to any individuals in rural areas.

Self-Help Enterprises has 40 years of experience in the community development efforts of California’s rural San Joaquin Valley. While resources are never adequate to meet the needs of this area, in the past 2 decades we have seen a significant increase in the participation of banks in efforts critical to Valley communities. These changes would be devastating to our community development efforts and our work to improve the lives of low-income residents of the San Joaquin Valley, one of the most impoverished areas of the nation.

Since its inception, CRA has required lenders to become more involved in low-income communities and engage in community outreach and development projects. This is in jeopardy due to the proposed regulation changes. Without the CRA requirements, smaller lenders will almost certainly reduce their investments in low-income rural areas particularly in tight financial times.

Banks and financial institutions of all sizes have invested in our organization and others like us across the country due to our success over the past 40 years – and in order to satisfy their CRA lending and investment tests when reviewed by the Office of the Comptroller. While we appreciate these partnerships, quite frankly, it is clear that the banks would not be involved to the extent they currently are if not for the CRA incentive.

Current CRA regulations require that banks with assets of $250 million or more satisfy CRA performance evaluations that look at the lending, investing, and services provided by the bank to low and moderate income communities in their service area. Small institutions, defined under current regulations as banks with less than $250 in assets, are subject to a streamlined CRA exam that does not include either an investment test or a services test.

The regulatory change proposed by FDIC would significantly expand the universe of institutions that could take advantage of the streamlined CRA test by increasing the asset threshold for small banks from $250 million to $1 billion. We understand that raising the asset threshold in this manner would allow 95 percent of the state chartered banks regulated by the FDIC to take advantage of the streamlined CRA exam and thus not be subject to the investment or services test. The proposed rule would have an even deeper impact in rural communities where 99 percent of the FDIC regulated banks have assets of less than $1 billion. This proposed change is of great concern to us. The low-income census tracts and communities we serve cannot afford to see a significant segment of the banking industry exempted from the rigors of a full CRA exam.

We are confident that without the incentive of CRA, many banks would discontinue or reduce the level of investing and services provided in low and moderate income communities – and thus there would be less incentive for financial institutions to partner with community organizations. Compounding the problem, the proposal would only require that these institutions engage in one of the three activities – lending, investing or services – and we firmly believe that all three activities are vital. It is important that sow and moderate income households continue to be the primary focus of CRA activity.

CRA has been instrumental in increasing homeownership, boosting economic development, and expanding small businesses in California’s minority, immigrant, and low- and moderate-income communities. The proposed changes will slow down, if not halt, the progress made in community reinvestment.

Sincerely,
Peter N. Carey
President/CEO