Federal Deposit
Insurance Corporation

From: Hubert Van Tol [mailto:hvantol@centurytel.net]
Sent: Wednesday, October 20, 2004 5:00 PM
To: Comments
Subject: SPAM::RE: RIN 3064-AC50

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

RE: RIN 3064-AC50

Dear Mr. Feldman:

Fairness In Rural Lending urges the FDIC to withdraw its proposed modification of the Community Reinvestment Act regulation. The proposed regulation has four serious problems that will harm rural consumers by rendering the Community Reinvestment Act virtually meaningless for those rural communities.

1. By raising the asset level at which banks become large banks the
proposed rule will drastically decrease the number of FDIC-regulated
banks that will be considered large banks for CRA purposes and thus
decrease the amount of community development investments and services
made available in rural communities.

2. The proposal eliminates holding company size as a standard.

3. The proposal replaces the investment and service test for banks in
the $250 million to $1 billion range with a community development
test that has so much flexibility that it will encourage only the
simplest kinds of community development activity.

4. The proposal purports to solve a real problem of CRA's relevance
for rural communities by simply allowing all rural loans, not just
those focused on LMI people and geographies to count for CRA
purposes; this "solution" will make the CRA meaningless in rural
communities.

Decreasing the number of banks covered by the large bank test
The difference between how "small" banks and "large" banks are currently reviewed for CRA purposes is that the large banks have a service test and investment test in addition to a lending test. The investment test is an important tool for increasing the amount of affordable housing and community development investments in our communities, because the banks that are subject to the large bank test feel more need to work harder to support affordable housing and make the kinds of investments that help low and moderate income people.

Currently in Wisconsin there are approximately 310 financial institutions covered by CRA. With the current $250 million threshold, 64 institutions are considered large banks while the other 246 are small banks. The Office of Thrift Supervision (OTS) recent decision to raise the threshold for thrifts to $1 billion removed five of the 64 institutions from the large bank test, but if the FDIC follows suit another 27 institutions would be shifted from the large bank to the small bank category and there would be just 32 "large banks" left in Wisconsin. Some rural counties would either no longer have any offices of a "large bank" located within them or would be reduced to having just one large bank.

Iowa has 99 counties. Eleven of these counties are defined as MSAs while the other 88 counties are non-metropolitan counties. While all MSA counties have more than one large bank and will continue to have if this new regulation is adopted, twenty of the non-metropolitan counties currently do not have a large bank and another 21 have just one large bank. If this rule goes into effect, however, 39 rural counties will no longer have a large bank and another 40 will just have one large bank. Only 9 rural counties and the 11 metropolitan counties will have more than one large bank in Iowa if this proposal is approved.

Non-profit housing developers and community development organizations in rural counties continue to need local banks that are committed to making the extra effort to see that affordable housing gets built, that affordable housing for seniors is invested in, that banking services for the unbanked is developed, that remittance services for immigrants is available at a reasonable fee, and that small business owners and farmers are supported in their efforts to expand their businesses. A local "large bank" that is specifically tested for its investments and services to LMI geographies and people will be much more likely to see that these things get done.

Many small banks have been extremely creative in developing products and niches in the overall banking market. The FDIC itself has supported some very small FDIC-regulated institutions that have mastered the process of putting their charters out for hire to payday lenders. It is inconceivable to us that $250 million banks which are able to engage in an extremely risky, community destroying, highly complicated business like payday lending are nonetheless too small to create investments and services that benefit LMI customers in their assessment areas.

Ignoring the Size of the Holding Company is Wrong
The idea that the size of the holdng company makes no difference on the ability of a bank to comply with a more complicated CRA test is simply wrong. As one instance, most of the subsidiary banks of a bank as large as Harris Bank of Chicago would be judged under the small bank exam if the holding company provision of this proposal is approved. This is simply wrong.

The Community Development Test is so Flexible That it is Meaningless
The FDIC's proposal will be an invitation for the banks in the $250 million to $1 billion dollar range to simply pay lip service to the proposed community development test. There is currently no incentive for a bank in this size range to aspire to having an Outstanding CRA rating unless they foresee being purchased by a much larger bank in the near future. Using the community development test as an "extra" for banks seeking an outstanding rating will be a meaningless incentive in the current regulatory environment. While having the community development test as a separate test that counts for a significant portion of their overall CRA rating would increase the incentive for a bank to engage in community development the flexibility provided will simply mean that banks of this size will gravitate towards the simplest forms of community development lending and the more complex work of providing community development services and investments will be ignored. This will harm rural communities.

The Proposed Definition of "Rural" Community Development is Too Broad
While there are some problems with CRA definitions in rural America the cure that the FDIC proposes is worse than the disease. As proposed, ''community development'' activity could benefit either low- and moderate-income individuals or individuals who reside in rural areas." Proposing that community development activity that benefits all rural people should be considered for CRA purposes is completely outrageous. While rural America is on average less income-segregated than urban America the notion that all non-metro areas are equally in need of community development activity is a dangerous undercutting of the original purpose of the Community Reinvestment Act.

Rather than destroying the geography income test, we would recommend that instead the bank regulators begin using the state median income (rather than the non-metro median income) as the base for setting the LMI levels in non-metro counties. Under current definitions, because of higher median incomes in metropolitan areas) there are more LMI people and geographies in urban areas than there are in rural areas; shifting the base for non-metro counties would help alleviate this problem.

We urge the FDIC to withdraw this ill-advised proposal and continue discussions for true CRA reform with the Federal Reserve and OCC, or else refer the matter to Congress.

Sincerely.
Hubert Van Tol
Executive Director

Cc: National Community Reinvestment Coalition
President George W. Bush
Senators John Kerry and John Edwards