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WESTERN BANK
August 27, 2004
Robert E Feldman, Executive Secretary
Attn -- Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street NW
Washington, DC 20429
RE: Proposed Changes to CRA - 12 CFR Part 245
Dear Mr. Feldman,
Western Bank, a $340 million community bank with six branches located
in Minneapolis/St Paul, welcomes this opportunity to provide comments on
the proposal to amend regulations implementing the Community
Reinvestment Act.
We are proud of our almost ninety year tradition of helping all the
communities we serve to grow and prosper. We have always seen our
success tied to the success of the communities we serve. Two of our
branches are located in moderate-income census tracts and the other four
branches are located in middle-income areas.
We strongly support the proposal to increase the asset size from $250
million to $1 billion for banks to be eligible for the small bank
streamlined CRA examination. We also support the addition for banks
between $250 million and $1 billion to add a new community development criterion to the small bank performance standards that would provide
these institutions with a choice amount community-based lending, investment and service activities.
The reason Western Bank has been outstanding for a very long time
is part of our culture. An integral part of what we do as a community
bank
is providing loans, services and volunteerism in the communities we
serve. A large amount of time was
spent to document what we do. Even though we were doing it for
so many years, now we had to document our involvement and activities
to prove
what we do. Each financial institution has their own area of expertise
or strategic mission. We concur with the addition of a community development
performance for criterion for banks with assets
greater than $250 million and up to $ 1 billion as an additional
component of the streamlined small bank standards.
Our comments will focus on the costs of regulatory burden, the ability
to compete, and examination resource allocation.
Costs of regulatory burden
Under the current rules, Western Bank began CRA data collection in the
year 2002. Many resources prior to data collection included
creating/learning systems, procedures, controls, and training. The
collection and reporting are complex requirements with many subtle
nuances. The end product, just as with HMDA data and reporting, must be
accurate. Even if proper training and data collection procedures are in
place, there is also scrubbing and re-scrubbing of the data to ensure
data quality. Large Bank CRA data collection and reporting comes at a
significant cost; surely these dollars could be better spent adding new
loans, products, and services to the local communities we serve.
Western Bank recently had our CRA compliance examination (March
2004), which was our first CRA exam moving from the small bank to the
large bank arena. The combined compliance and CRA exam lasted
three-and-a-half weeks. While we were able to give the examiners all the
details, data, and documentation, it was a heavy burden on the
compliance members of the bank. However, this was just the end result of
all the work that went into to prepare for the small to large bank
status change, data collection, community development loans, community
development services, and community development investments. We would
estimate that per year at least total of 485 hours is spent on
collecting, ensuring data quality, and submitting the CRA data.
Furthermore, there would be additional hours for training and tracking
community development loans, services, and investments. This estimate
also does not include maintaining and updating the CRA public file.
Therefore the total time to comply with this regulation is much greater.
Ability to compete
Large institutions can more effectively manage the regulatory burden by
developing processes and procedures and then spreading the development
costs across many banks. Standard forms, centralized processing and
strong internal controls that not only create additional efficiencies,
but result in a uniform, high standard end product. Community banks,
while being held by examiners to the same high standards for end
product, do not share the luxury of spreading the costs and crating
those same large bank efficiencies. For us, the implementing and ongoing
costs for the regulatory burden come from just one source, our bottom
line. Also, we do not have the luxury of having a dedicated staff to
just compliance or just CRA and therefore the compliance resource come
directly with staff with additional duties.
The Large Bank CRA Investment Test is another area where most
community banks cannot compete. The investment test is clearly skewed
towards truly large institutions. Three multi-state/multi-billion dollar
banks dominate the Minneapolis/St Paul MSA (Wells Fargo, US Bank, and
M&I). The challenges of competing with these large institutions for
qualified investments in this market are daunting at best.
Examination resource allocation
In a press release dated August 3, 2004 the FDIC gave some background on
the number of institutions in the categories of small bank and large
bank. This press release indicates that while increasing the small
institution size to $1 billion would initially result in a decrease in
the percentage of institutions considered large, the percentage of the
industry assets held by large institutions would decrease by 1.1% from
when the $250 million level was adopted in 1995. The regulatory agencies
would be reviewing approximately the same level of assets to ensure
compliance with CRA. Also the regulatory agencies would have more time
to review more institutions under the streamlined examination process as
proposed.
The proposal to increase the large bank threshold to $1 billion is an
example of legislators, regulators, financial institutions, and
community groups working to forge a more effective, yet fair, approach
to the goals of the Community Reinvestment Act.
The CRA proposal does not mention if anything would change regarding
loan data collection for a large bank. We would support that only large
banks (i.e. over $1 billion) would continue to submit data collection to
the FFIEC annually. If this remains at the $250 million to up to $1
billion financial institutions, it wouldn't give us much relief.
Thank you for the opportunity to share our views on this important
proposal.
Sincerely,
Cindy Bauer
Assistant Vice President - Loan Review,
Compliance & CRA Officer
Western Bank
663 University Ave
St. Paul, MN 55104 |
