PEOPLES STATE BANK
Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Re: 12 CFR Part 345
RE: Proposed Revisions to the Community Reinvestment Act Regulations
Dear Mr. Feldman:
I am writing to support the federal bank regulatory agencies' (Agencies)
proposal to enlarge the number of banks and saving associations that
will be examined under the small institution Community Reinvestment
Act (CRA) compliance examination. The Agencies proposal is to increase
the asset threshold to $500 million (from $250 million) and to eliminate
consideration of whether the institution is owned by a holding company.
This proposal is clearly a major step toward appropriate implementation
of the Community Reinvestment Act and should greatly reduce regulatory
burden on those newly eligible institutions. I strongly support both
aspects of this proposal.
When CRA regulations
were rewritten in 1995, the banking industry recommended community
banks
of less than $500 million should be eligible
for a less burdensome examination. This change actually achieved
what the original Act intended: it asked examiners to focus on the
bank’s loans and assess whether it was meeting the credit needs
of its entire community. It imposed no investment requirement and
added no data reporting requirements, fulfilling the promise of the
Act’s sponsor, Senator William Proxmire, that there would be
no additional paperwork or record keeping required. It also created
a simple assessment test of the bank’s record of providing
credit in its community. This test considers the institution’s
loan-to-deposit ratio; the percentage of loans in its assessment
areas; its record of lending to borrowers of different income levels
and businesses and farms of different sizes; the geographic distribution
of its loans; and its record of taking action, if warranted, in response
to written complaints about its performance in helping to meet credit
needs in its assessment areas. Our bank’s CRA ratings have
been Outstanding and we welcome the opportunity, through examinations,
to document the commitment we make to our community. With total assets
approaching $245 million, we are on the verge of losing our small
bank status and need to anticipate the large bank CRA exam. In reading
the requirements set forth in 12 CFR § 345.42 we will need to
make a significant investment in technology upgrades, additional
paperwork, and even manpower and this added expense will do nothing
to enhance our already strong commitment to meeting the credit needs
of our bank’s entire community.
Since 1995, regulatory burden on small banks has only grown larger,
including massive new reporting requirements under HMDA, the USA
Patriot Act and the privacy provisions of the Gramm-Leach-Bliley
Act. However, the nature of community banks has not changed. When
a community bank must comply with the requirements of the large
institution CRA examination, its costs and burdens increase dramatically.
In looking at my bank, converting to the large institution examination
will require, among other things, that we devote additional staff
time to documenting services and investments and begin to geocode
all of our loans that might have CRA value. This imposes a dramatically
higher regulatory burden that will drain both money and personnel
away from helping meet the credit needs of the communities in which
we do business.
It is as true today as it was in 1995, (and in 1977 when Congress
enacted CRA), that a community bank meets the credit needs of its
community if it makes a certain amount of loans relative to deposits
taken. Its business activities are usually focused on small, well-defined
geographic areas where the bank is known. The small institution CRA
examination accurately captures the information necessary for examiners
to assess whether a bank is meeting the credit needs of its community
- nothing more should be required to satisfy the Act.
Even though raising
the small institution CRA examination threshold to $500 makes more
community banks eligible, there would only be
a negligible change to the percentage of industry assets subject
to the large retail institution test. It would only decline from
a little more than 90% to a little less than 90%. That slight decline
would more closely align the current distribution of assets between
small and large banks with the distribution anticipated when the
Agencies adopted the original definition of “small institution.” Thus,
the Agencies’ proposal to revise the CRA regulation is really
just preserving the status quo of the regulation, which has been
altered by a drastic decline in the number of banks, inflation and
an enormous increase in the size of large banks.
I really believe
that the Agencies need to provide even greater relief to community
banks
than just preserving the status quo. Even
though the small institution test was the most significant improvement
of the 1995 CRA revision, it was wrong to limit its application to
banks below $250 million in assets, thereby depriving many community
banks of any regulatory relief. A bank with more than $250 million
in assets faces significantly increased regulatory burdens without
producing additional benefits, as contemplated by CRA. In today’s
market, even a $500 million bank often has only a handful of branches.
I recommend raising the asset threshold for the small institution
exam to at least $1 billion.
Raising the limit
to $1 billion is appropriate for two reasons. First, keeping the
focus
of small institutions on lending would be
entirely consistent with the purposes of the Community Reinvestment
Act, which is to ensure the Agencies evaluate how banks help to meet
the credit needs of the communities they serve. Second, raising the
limit to $1 billion will have only a small effect on the amount of
industry assets covered under the more comprehensive large bank test.
According to the Agencies’ own findings, raising the limit
from $250 to $500 million would reduce total industry assets covered
by the large bank test by less than one percent. According to December
31, 2003 Call Report data, increasing the limit to $1 billion will
reduce the amount of assets subject to the much more burdensome large
institution test by only 4% (to about 85%). Yet, the additional relief
provided would be substantial and reduce the compliance burden on
more than 500 additional banks and savings associations (compared
to a $500 million limit). Accordingly, I urge the Agencies to raise
the limit to at least $1 billion, providing significant regulatory
relief while, to quote the Agencies in the proposal, not diminishing “in
any way the obligation of all insured depository institutions subject
to CRA to help meet the credit needs of their communities. Instead,
the changes are meant only to address the regulatory burden associated
with evaluating institutions under CRA.”
In conclusion, I strongly support increasing the asset-size of banks
eligible for the small bank streamlined CRA examination process as
a vitally important step in revising and improving the CRA regulations
and in reducing regulatory burden. I also support eliminating the
separate holding company qualification for the small institution
examination, since it places small community banks that are part
of a larger holding company at a disadvantage to their peers and
has no legal basis in the Act. While community banks, of course,
still will be examined under CRA for their record of helping to meet
the credit needs of their communities, this change will eliminate
some of the most problematic and burdensome elements of the current
CRA regulation from community banks that are drowning in regulatory
red-tape.
Sincerely,
Deborah D. Johanningmeier
Executive Secretary
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