Federal Deposit
Insurance Corporation

Sonoma County Housing Advocacy Group

September 30, 2004

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:

The Sonoma County Housing Advocacy Group submits the following comments concerning the Federal Deposit Insurance Corporation's (FDIC) proposed changes to its regulations implementing the Community Reinvestment Act. The Housing Advocacy Group is a voluntary association that promotes affordable housing, and housing opportunities for homeless persons, farmworkers, persons with disabilities and seniors. Northern California is one of the least affordable housing markets in the entire United States. Over the past ten years, we have helped to reduce governmental constraints to affordable housing in Sonoma County, and have worked to expand housing choices for groups like farmworkers.and seniors. But development of affordable housing requires the participation of banks and other financial institutions. The Community Reinvestment Act has been an enormous help in getting banks in this area to participate in affordable housing development.

The FDIC's proposal would, for banks it regulates, change the definition of institutions considered "small" 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.

We are deeply concerned about the FDIC's proposal for a number of reasons. First, the proposal would shift most of the financial institutions in this area currently considered "large" for CRA purposes to "small" status. "Small" banks are subject to streamlined CRA exams that do not consider an institution's level of community development lending, investments, grants, and services to low- and moderate-income communities. Additionally, "small" institutions are not required to report small business lending data. Smaller cities and rural areas predominantly served by these mid-sized banks will be particularly hard hit by this change. Increasing the asset level for banks considered "small" for CRA purposes would have a strong negative effect on community development efforts both in Northern California and nationwide. Under the streamlined small bank CRA exam, these midsized institutions would have little incentive to provide critical community development lending, investments, or services to LMI communities and would have little accountability for their small business lending in these communities.

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 vaguely defined and its weight on CRA exams is unclear.

Finally, changing the defmition of "community development" to include any type of rural development, regardless of its impact on low- and moderate-income (LMI) households or communities would allow banks to get CRA credit for investing in projects that have little or no benefit for LMI markets.

Current CRA requirements have been in place for many years, and have been a major factor in promoting investment and revitalization in lower income areas of cities around the country. These requirements impose very little "regulatory burden" on mid-sized financial institutions. The FDIC's proposed changes would shift significant banking resources in LMI 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, banks will be much less likely to participate in such activities in LMI communities. Additionally, these banks, which are significant small business lenders, will no longer publicly report essential small business lending data which would be a critical blow to monitoring community reinvestment performance.

In closing, we would strongly urge the FDIC to withdraw the proposed changes to its CRA regulations. If you have any questions, or would like additional information, please feel free to contact us.

Sincerely,
Stephe Harper, Chair
Sonoma County Housing Advocacy Group