Independent Bank
Corp.
From: Parks, Cathy [mailto:CParks@ibcp.com]
Sent: Tuesday, April 27, 2004 3:20 PM
To: Comments
Subject:
Federal Deposit Insurance Corporation
RE: Proposed Revisions to the Community Reinvestment Act
Regulations
To Whom It May Concern:
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 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 examination,
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 limitation 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.
While the small
institution test was the most significant improvement of
the revised CRA, it was wrong to limit its
application to only banks below $250 million in assets, depriving
many community banks from any regulatory relief. Currently,
a bank with more than $250 million in assets faces significantly
more requirements that substantially increase regulatory
burdens without consistently producing additional benefits
as contemplated by the Community Reinvestment Act. In today’s
banking market, even a $500 million bank often has only a
handful of branches. I recommend raising the asset threshold
for the small institution examination 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,
which the small institution examination does, would be entirely
consistent with the purpose of the Community Reinvestment
Act, which is to ensure that 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 total 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, raising 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,
again, be substantial, reducing 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,
Richard Butler
SVP, Independent Bank Corp.
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