OptimumBank
Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
March 22, 2004
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) 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. We estimate that we would need to hire an additional experienced
employee at $50,000 to $75,000 per year. In addition we would require
additional computer software at $5,000 to $10,000 cost as well as
training and recordkeeping expenses estimated at $10,000 to $15,000
per year. 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 L. Browdy
President, OptimumBank
Plantation, Florida
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