First Bank
March
19, 2004
Mr. Robert E. Feldman, Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Attn: Comments
Re: Proposed Revisions to the Community Reinvestment Act Regulations
12CFR Part 345
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) examination. The Agencies propose to increase the asset
threshold from $250 million to $500 million and to eliminate any
consideration of whether the small institution is owned by a holding
company. This proposal is clearly a major step towards an appropriate
implementation of the Community Reinvestment Act and should greatly
reduce regulatory burden on those institutions newly Reinvestment
Act and should greatly reduce regulatory burden on those institutions
newly made eligible for the small institution examination, and I
strongly support both of them.
When the CRA
regulations were rewritten in 1995, the banking industry recommended
that community
banks of at least $500 million be eligible
for a less burdensome small institution examination. The most significant
improvement in the new regulations was the addition of that small
institution CRA examination, which actually did what the Act required:
had examiners, during their examination of the bank, look at the
bank’s loans and assess whether the bank was helping to meet
the credit needs of the bank’s entire community. It imposed
no investment requirement on small banks, since the Act is about
credit not investment. It added no data reporting requirements on
small banks, fulfilling the promise of the Act’s sponsor, Senator
Proxmire, that there would be no additional paperwork or recordkeeping
burden on banks if the Act passed. And it created a simple, understandable
assessment test of the bank’s record of providing credit in
its community: the 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.
Since then, the 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. But the nature of community banks has not changed. When a
community bank must comply with the requirements of the large institution
CRA examinations, the costs to and burdens on that community bank
increase dramatically. In looking at my bank, converting to the
large institution examination requires, among other things, that
we devote additional staff time to documenting services and investments,
which we currently do not do, and begin to geocode all of our loans
that might have CRA value. This imposes a dramatically higher regulatory
burden that drains both money and personnel away from helping to
meet the credit needs of the institution’s community.
I believe that 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. A community bank is typically non-complex; it
takes deposits and makes loans. Its business activities are usually
focused on small, defined geographic areas where the bank is known
in the community. The small institution examination accurately captures
the information necessary for examiners to assess whether a community
bank is helping to meet the credit needs of its community, and nothing
more is required to satisfy the Act.
As the Agencies
state in their proposal, raising the small institution CRA examination
threshold to $500 makes numerically more community
banks eligible. However, in reality raising the asset threshold to
$500 million and eliminating the holding company limitations would
retain the percentage of industry assets subject to the large retail
institution test. It would decline only slightly, from a little more
than 90% to a little less than 90%. That decline, though slight,
would more closely align the current distribution of assets between
small and large banks with the distribution that was anticipated
when the Agencies adopted the definition of “small institution.” Thus,
the Agencies, in revising the CRA regulation, are 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 believe that the Agencies need to provide
greater relief to community banks than just preserve the status
quo of this regulation.
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 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,
Laura Crocker
Compliance & CRA Officer
Firstbank
Alma, MI
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