Federal Deposit
Insurance Corporation

From: Whatley, Melissa [mailto:Melissa.Whatley@sanjoseca.gov]
Sent: Wednesday, October 20, 2004 5:21 PM
To: Comments
Subject: Community Reinvestment -- RIN 3064-AC50

October 20, 2004

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

Subject: RIN 3064-AC50 - City of San José Opposition to Proposed
Changes to CRA

Dear Mr. Feldman:

Thank you for this opportunity to respond to the Federal Deposit Insurance Corporation's (FDIC) recent proposal to change provisions under the Community Reinvestment Act (CRA). On August 20, 2004 the FDIC proposed raising the asset threshold for "small banks," which are currently exempt from the Community Reinvestment Act's more stringent reporting requirements. By quadrupling the asset threshold under which banks are defined as small from $250 million to $1 billion, the proposed change eliminates 96% of FDIC-regulated banks from having to perform in three distinct categories: lending, investing and services to low and moderate income communities.

The Community Reinvestment Act (CRA), has been successful in its goal of involving the lending community in developing community-based solutions to housing needs. Since 1977, banks and community groups have successfully partnered together to implement these solutions to meet affordable housing needs. The CRA represents a cornerstone of our nation's private investment in low-income multifamily construction and affordable single-family lending.

Today, most federally subsidized housing programs affordable to low-income people require some level of private investment. The CRA helps ensure that this private financing is at the table. Without the strong CRA tests of today, applicable to all mid-size banks, such partnerships will go unattended and the units they produce will be lost.

Under the proposed rule change, banks with assets of between $250 million and $1 billion would be recategorized as small banks for the purposes of testing lending activity under the CRA. Small banks (today defined as having less than $250 million in assets) today enjoy cursory lending exams. The FDIC's August 20 proposal brings an additional 900 banks, with assets of more than $400 billion, under this cursory lending exam. Today, banks with assets of more than $250 million in assets are examined for the innovativeness and complexity of their loans, the amount and geographic distribution of their loans, the variety of income groups served by loans and the types of loans (mortgage loans to various income groups, small business and small farm loans, etc.)

The City of San José has concern with the FDIC's proposed changes and feels that CRA has made great strides in improving the services provided in low-income communities, due in large part to a stringent reporting mechanism. The City is apprehensive that a watered down version will make it more difficult for our City to track the work of our lending community in San José. We increasingly use this data when determining the lending practices in our low-income communities and use it to track and guide how our City is doing in serving the needs of our residents. The Department fears that with these proposed changes, the current transparency of the system will be lost to the determinant of our low-income neighborhoods. Therefore, we would encourage the FDIC to reconsider the threshold of $1 billion as the definition of a "small bank."

If you have any questions or concerns regarding the City's position, please feel free to contact me at (408) 277-3863. Thank you for your time and consideration.

Sincerely,
Leslye Corsiglia
Director, Housing Department
City of San José, California