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FDIC Federal Register Citations
Fifth Avenue Committee, Inc.
From: Michelle de la Uz [mailto:MdelaUz@FIFTHAVE.ORG]
Sent: Wednesday, October 20, 2004 4:28 PM
To: Comments
Subject: CRA Comments - RIN number 3064-AC50
Mr. Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th St. NW 20429
RE: RIN 3064-AC50
Dear Mr. Feldman:
Fifth Avenue Committee, a twenty-six year old community development corporation
serving South Brooklyn, New York, urges you to withdraw the proposal
of the Federal Deposit Insurance Corporation to quadruple (to $1 billion)
the minimum asset size for applying the full Community Reinvestment Act
(CRA) exam to state chartered non-member banks. This proposed change
in the CRA regulations would have a devastating impact on lending, housing,
and access to financial services in urban and rural communities across
America.
CRA has been instrumental in increasing homeownership, boosting economic
development, and expanding small businesses in the nation’s minority,
immigrant, and low- and moderate-income communities. The FDIC proposal
would dramatically diminish banks’ obligation to reinvest in their
communities. It revises the CRA rules to make the less rigorous CRA exam
applicable to an additional 900 banks with assets totaling $401 billion.
Adoption of the FDIC measure is likely to mean the loss of hundreds of
millions of dollars in loans, investments, and services for local communities
and would disproportionately impact rural areas and small cities where
the market presence of these mid-sized banks is often great.
FDIC rulemaking on this matter is flawed both in terms of procedure and
substance. The draft proposal was adopted on a divided vote at a board
meeting that was called on unusually short notice, and that provided
some board members with only limited opportunity for prior review. The
board provided a minimal 30-day public comment period. A few days before
the schedule end of the comment period on September 20, the FDIC granted
a 30-day extension. While the extension provides a needed additional
opportunity for public comment, we cannot condone the “go it alone” course
the FDIC has charted as an acceptable substitute for the joint rulemaking
approach traditionally employed by the banking agencies for the promulgation
of CRA regulations. Furthermore, the federal agencies have also held
public hearings across the country when they have proposed changes of
this magnitude to CRA and other fair lending laws.
The FDIC rule, as proposed, would greatly weaken or eliminate extremely
important standards necessary to ensure that CRA is effective. The proposed
change would weaken the lending test and also eliminate the investment
and service parts of the CRA exam for FDIC supervised banks that have
assets between $250 million and $1 billion. The Fifth Avenue Committee,
Inc. strongly opposes the FDIC’s proposed rule raising the asset
threshold for “small banks” from $250 million to $1 billion
and thus exempting these banks from many of the most important requirements
of the Community Reinvestment Act (CRA). This change would have a devastating
impact on lending, investments and services in low and moderate income
communities. The affordable housing shortage is at crisis levels in New
York City, and in communities across the nation. The proposed change
to CRA would drastically reduce the financing available for affordable
housing development and other important community development projects.
The FDIC’s plan to add a weak and trivial community development
criterion in lieu of the investment and service tests applicable today
(that collectively count for 50 percent of a bank’s CRA grade)
is a wholly inadequate substitute for the present exam standards. The
new factor permits these banks to satisfy the community development criterion
by choosing whether to provide community development loans, investments
or services instead of assessing their performances for all three categories,
as is currently required. This change is likely to result in a significant
drop-off of lending, investments and services for affordable housing
development, Low Income Housing Tax Credits, community service facilities,
such as clinics, and economic development projects.
Another harmful element in the proposal is the dramatic weakening of
the lending test for midsize banks which could decrease access to credit
for many Americans. Under the proposal banks with assets between $250
million and $1 billion will no longer be subject to the rigorous examination
of their mortgage, small business, small farm, and consumer lending.
Further, these banks would no longer be required to collect and report
essential lending information such as small business lending by census
tracts or revenue size of the small business borrowers. Without data
on lending to small businesses and small farms, it is impossible for
the public to know how well these midsize banks help to meet the credit
needs of their local communities.
We also fear that the elimination of the service test will have harmful
consequences for low- and moderate-income consumers. It takes away
the regulatory incentive for midsize banks to maintain and open new
branches and ATM machines serving low-and moderate-income geographies.
It is also likely to undercut the extent to which these banks provide
checking and savings accounts for low- and moderate-income consumers,
affordable banking services necessary for bringing unbanked households
into the financial mainstream, or money transfer and remittance services,
which are particularly important to new immigrants and ethnically diverse
communities.
According to the FDIC data, the rule change would mean that only 223
of 5,291 (about 4%) of all FDIC-supervised banks would continue to receive
the full CRA exam. It would affect some parts of the U.S. more drastically
than others. Ninety-nine percent of rural FDIC-supervised banks would
be exempted from full coverage. We calculate that no FDIC-supervised
banks in eight states (Alaska, Arizona, Idaho, Minnesota, Montana, New
Mexico, West Virginia and Wyoming) would be fully covered by CRA. Thirty-six
other states would have five or fewer banks facing full CRA scrutiny.
In addition, this proposal would broaden the definition of community
development in rural areas so that all FDIC-supervised banks could receive
CRA “credit” even if these activities are not particularly
directed at serving the needs of low- and moderate-income households,
as is presently required. The proposal would be particularly harmful
to rural counties, which already have fewer banks. Rural counties have
4.3 banks compared to 10.9 banks in urban counties, on average.
The FDIC proposal and the rule recently adopted by the OTS diminish the
CRA requirements for midsize banks and work at cross purposes with the
Act’s statutory mandate. As you know, this mandate requires that
banks, regardless of their asset size, have a continuing and affirmative
obligation to serve the credit and deposit services needs of their local
communities, including low- and moderate-income areas.
This is not the time to exempt banking institutions from compliance
with the terms of the CRA. Fifth Avenue Committee strongly urges you
to withdraw this proposed rule change.
Sincerely,
Michelle de la Uz
Executive Director
Fifth Avenue Committee, Inc.
141 Fifth Avenue
Brooklyn, NY
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