Federal Deposit
Insurance Corporation

October 20, 2004

Robert E. Feldman
Executive Secretary
Attn: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17 th St., N.W.
Washington D.C., 20429

Re: RIN number 3064–AC50

Dear Mr. Feldman:

I am writing on behalf of the Statewide Housing Action Coalition (“SHAC”) to comment on the Federal Deposit Insurance Corporation’s (FDIC’s) proposed changes to their regulation of the Community Reinvestment Act. SHAC is a member-based statewide affordable housing advocacy organization that has worked in partnership with affordable housing developers, tenant advocates, housing counselors and lenders in Illinois for almost 20 years.

The FDIC has proposed changing the definition of “small bank” for CRA purposes from any institution with less that $250 million in assets and not part of a holding company with over $1 billion in assets to include all institutions with less than $1 billion in assets regardless of holding company size. Additionally, the FDIC proposal would add a community development criterion for institutions between $250 million and $1 billion in assets and amend the definition of “community development” to include a rural development component regardless of the population served by the project.

We are deeply concerned about the FDIC’s proposal for a number of reasons. First, the proposal would shift a significant number of financial institutions currently considered “large” for CRA purposes to “small” status. “Small” banks are subject to streamlined, more limited CRA exams that do not consider an institution’s level of community development lending, investments, grants, and services to low- and moderate-income communities. Under the streamlined small bank CRA exam, these midsized institutions lose any incentive CRA currently provides to extend community development lending, investments, or services to low-and moderate-income communities.

There is a significant concern that small cities and rural areas predominantly served by these mid-sized institutions will be particularly hard hit by this change.

Second, the community development criterion proposed by the FDIC for institutions between $250 million and $1 billion that would allow these banks to choose one activity from community development lending, investments, or services to be considered toward their final CRA rating, is vague in that it does not specify the weight of the community development criterion relative to other exam criteria .

Finally, the inclusion of a rural community development component to the mid-sized bank exam, as proposed, does not make sense. Under the proposed changes, all rural community development activity can be applied to the community development test regardless of the population served by the activity. Expanding the definition of “community development” to include any type of rural development, regardless of its impact on low- and moderate-income households or communities would allow banks to get CRA credit for investing in projects that have little or no benefit for low/mod income markets. This seems to fly directly in the face of the spirit and intent of CRA. Although we believe targeting community development in rural communities is important, we feel this activity should still be targeted to benefit low-and moderate- income households or communities. Otherwise, financial institutions could be given CRA credit for activities such as golf course financing that have limited or no impact on low-and moderate- income households or communities.

By raising the asset threshold for designation as a small bank, the FDIC will also negatively impact a major non-lending component of the CRA exam – the service test. Large banks are subject to the test, small banks are not. The service test remains a major engine to fuel the expansion of financial services into traditionally underserved and unbanked markets. The service test is critical to bringing lower-income people into the financial mainstream. Our analysis of Illinois indicates that the FDIC’s proposed changes would shift significant banking resources in low-and moderate-income and rural communities to “small” banks. Once these institutions are subject to streamlined CRA exams, they will no longer be examined and given credit for activities such as their investments in affordable housing developments, developing innovative financial services products that reach the unbanked, or expanding their branch networks into underserved communities. Without this incentive, it is less likely that banks will participate in such activities in these communities.

We thank you for your consideration and strongly urge the FDIC to withdraw the proposed changes to its CRA regulation.

Sincerely,

Tammie Grossman
Executive Director
Statewide Housing Action Coalition