Federal Deposit
Insurance Corporation

Fishbank Financial Corporation

October 19, 2004

Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429-9990

Re: RIN Number 3064-AC50: FDIC Proposed Increase in the Threshold for the Small Bank CRA Streamlined Examination

Dear Sir or Madam:

Our holding company, Fishbank Financial Corporation, is comprised of two national banks and two state, nonmember banks, with combined total assets of $800 million. We are writing to strongly support the FDIC’s proposal to raise the threshold for the streamlined small bank CRA examination to $1 billion without regard to the size of the bank’s holding company. This proposal would greatly relieve the regulatory burden imposed on many small banks such as ours which under the current regulation are required to meet the standards imposed on the nation’s largest $1 trillion banks. Making it less burdensome to undergo a CRA exam by expanding eligibility for the streamlined exam will not change the way our bank conducts business. In fact, it will enable the bank to free up human and financial resources that can be redirected to the community and used to make loans and provide other services.

The underlying problem with the CRA is that the definition of “large” bank is ill-suited for too many banks that are large by CRA standards only. As a result of being unfairly defined as “large”, these same banks are then subjected to a three-part test focusing on their efforts to lend, invest, and provide services that meet an overly restrictive definition of “community development”. The end result is that the 503 banks with total assets between $250 million and $1 billion that operate exclusively in nonmetropolitan areas of the country are subjected to a test that requires resources and expertise that many lack, as well as opportunities and needs that may not be present.

Evidence of this disproportionate regulatory burden can be seen when looking at the inequity in examination ratings. Since the regulation was last revised in the mid-1990’s, only 13% of “large” banks with assets of $1 billion or less received an Outstanding rating. Whereas, 31% of banks with assets greater than $1 billion have received an Outstanding rating. Results from the other end of the CRA ratings spectrum are even more alarming. Five times as many “large” banks with assets of $1 billion or less have received Needs to Improve ratings when compared to banks with assets of $1 billion or more.

The same discriminatory effect is experienced by banks with assets of less than $250 million that meet the definition of “large” solely because they are part of a holding company with assets of $1 billion or more. Nationwide, 345 evaluations of these institutions have taken place, with only 35 Outstanding ratings assigned (10%). If these banks were appropriately defined as “small” banks, their opportunity for an Outstanding rating increases 64%.¹

Our opponents argue that this data supports that a void exists and banks are not meeting the needs of our rural communities. However, they seem to ignore the fact that no bank is exempt from the CRA, and a “small” bank evaluation exists. In fact, over 98% of CRA examinations for these institutions have resulted in Satisfactory or Outstanding ratings. These ratings cannot be discounted and support the fact that for many rural communities, their bank is the catalyst for community development. The data used by community activists (and apparently the FRB and OCC) to advance their theory that rural communities will suffer if the regulations are revised, actually demonstrates the CRA’s more fundamental problem.² The perceived lack of investments taking place in rural America that meet the CRA definition of “community development” is not a result of a lack of action by community banks. Rather, it is a result of an unworkable definition of community development that ignores much of the activities undertaken by community banks, and results in disproportionately lower ratings for those institutions unfairly defined as “large”.

Nonetheless, for these institutions compliance is still required. Regrettably, this reality forces many community banks to seek investments that have less benefit to their local communities but meet the stringent definitions of the regulation. Many community banks have to invest in regional or statewide mortgage bonds or housing bonds to meet CRA requirements. These investments may benefit other areas of the state or region, but they actually take resources away from the bank’s local community. Such a reallocation of investment dollars was never the intent of Congress when the CRA was enacted, nor is it desirable today. “Community development” should include any project, loan, investment, or service that will improve the welfare and overall quality of life of residents in the assessment area, including (but not exclusively) low- and moderate-income residents and areas. Loans, investments, or services that improve healthcare, infrastructure, or education; expand job opportunities; and promote economic development are just some of the examples of projects that community bankers take leadership roles in every day. These activities should not be assessed based on their innovativeness or complexity as required by the regulation. Rather, they should be assessed based on the community need that they fulfill. More importantly, these true community development activities should no longer be sifted out during CRA evaluations because they do not meet a definition that lacks the flexibility to take into account the divergent needs of our rural communities.

Community activists and some within the regulatory agencies wrongfully assume that the reinvestment that takes place in rural communities is a result of the CRA. To the contrary, community bankers reinvest locally because the long-term viability of their institution and the economic prosperity of the community depends upon it. Ideally, the CRA rating would be a reflection of these efforts.

Unfortunately, the opposite is true, and revisions are still necessary for the subset of community banks impacted by the current debate. These institutions are considered “large” only when it comes to defining them for CRA purposes. As a result, they continue to expend disproportionate resources to collect government-mandated data to demonstrate their compliance with an overly restrictive three-part test that is unsuited to a community bank’s expertise, resources, and opportunities.

Meanwhile, their local, mainstreet competitors in many rural communities do not experience such a burden. In many parts of rural America, community banks that are unfairly defined as “large” compete for customers with credit unions, branches of nationwide, mega banks, and the government sponsored enterprises such as the Farm Credit System – all of which devote few or no resources at the local level to CRA compliance.³ As a community banker, I am sure you understand that these competitors have enough advantages already.

We trust that a majority of the members on the Board of Directors at the FDIC recognize that community reinvestment is the business model for viable community banking, and regulatory burden that only detracts from the efforts of community banks to serve their communities is poor public policy.

Sincerely,

Paula D. Wagner
Vice President, Audit & Compliance
_________________________

¹ Source: FFIEC CRA Ratings Database (www.ffiec.gov/cra).

² Claims by community groups that banks are not meeting expectations when it comes to community development can also be at least partially explained by the lack of information. Because many rural communities are served by “small” banks, community development activity is seldom part of the CRA evaluation (see Appendix A of the CRA regulation). Therefore, Public Evaluations are often silent on the many worthwhile activities undertaken by “small” banks, telling only a portion of the overall story and excluding worthwhile and needed projects that communities have come to rely on their local community banks to provide.

³ We have not touched on the question of cost associated with the “large” bank test. The OCC’s and FRB’s press releases question whether such cost exists. Such a notion is contrary to empirical data reported by Grant Thornton as part of a study commissioned by the Independent Community Bankers of America (“ICBA”) and feedback the agencies have consistently received since the revision to the regulation in 1995. The Grant Thornton/ICBA study found that costs more than double when they transition from the “small” bank to the “large” bank category, with personnel costs increasing 36.5% alone.