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FDIC Federal Register Citations

National Bankers Association

October 20, 2004

Robert Feldman
Executive Secretary
Attention: Comments/Legal ISS
Federal Deposit Insurance Corporation
550 17th St. NW
Washington, DC 20429-9990

RE: RIN 3604-AC50

Dear Mr. Feldman:

Thank you for the opportunity to comment on the FDIC's proposed amendments to its Community Reinvestment Act regulations, 12 CFR Part 345.

Founded in 1927, the National Bankers Association represents the interests of minority and women-owned financial institutions. Our member banks are located in 29 states and 2 territories, serving mainly distressed communities plagued by severe social and economic problems. Our members are deeply committed to providing employment opportunities, entrepreneurial capital and economic revitalization in neighborhoods that often have little or no access to alternative financial services.

For our member banks, service to their communities, which typically consist of low and moderate-income neighborhoods, is the essential reason that they exist. The Community Reinvestment Act serves a noble goal, for it encourages banks and savings institutions that do not have the same commitment that our members have to serve the credit needs of low and moderate-income neighborhoods to make that commitment. NBA supported CRA's enactment and implementation.

At the same time, however, there have been occasions where technical regulations or technical interpretations of regulations by the agencies and the examiners in the field have caused some of our members significant administrative burdens and costs.

The costs of complying with the large bank tests have been burdensome for our members whose assets exceed $250 million. Other trade groups have quantified these costs, but suffice it to say that they are significant and detract from the central mission of our members to make direct loans to members of the low and moderate-income neighborhoods in their communities. We commend the FDIC in its efforts to streamline the technical requirements of the CRA regulations so that our members can focus on serving the credit needs of their communities through direct lending rather than on the administrative technicalities that can consume our members' vital time and resources.

The FDIC's proposal to lift the asset size threshold to meet the definition of "small bank" from $250 million to $1 billion is reasonable and should be adopted. There are many banks that are local in character and community-focused that fall in an asset size between $250 million and $1 billion. These banks are very good at making direct loans in their communities and should be evaluated by the FDIC based on the small bank performance standards in 12 CFR 345.26.

They certainly should not be evaluated under the "investment test," which the current regulation requires for banks with assets of $250 million or more. The investment test "evaluates a bank's record of helping to meet the credit needs of its assessment areas through qualified investments." Qualified investments do not include direct loans to individuals and business located in the low to moderate-income community. See 12 CFR 345.23(a) and (b). The performance criteria that the FDIC applies to evaluate the investment performance of a bank includes "the innovativeness or complexity of qualified investments" and "the degree to which the qualified investments are not routinely provided by private investors." Most of our member banks, like many community banks, have the resources and expertise to make direct loans to benefit their communities, but generally the only kinds of investments that they are qualified to make are investment securities such as U.S. Treasuries, U.S. agency bonds, and municipal bonds. Most of our member banks that have assets of $250 million or more would do a better job of serving the credit needs of their communities by being allowed to devote their resources and available funds to make direct loans to their constituencies rather than invest in complex and innovative investments marketed by large Wall Street investment firms that some of our members may not fully understand and which carry large expenses and profit margins passed on to those Wall Street firms.

The FDIC has also proposed that banks with assets of between $250 million and $1 billion be subject to a "community development criterion." The FDIC would evaluate such institutions on the number and amount of community development loans, qualified investments, or community development services; the use of innovative or complex qualified investments, community development loans, or community development services; and the bank's responsiveness to credit and community development needs.

We note that under the existing small bank performance standards, the FDIC already considers community development loans and qualified investments. See 12 CFR 345.26(a)(1). This provision may make the FDIC's proposal to create an entirely separately evaluated "community development" criterion unnecessary.

One of our concerns relates to the somewhat restrictive definition of "community development loans" in the current regulation, which the FDIC has not proposed to amend. The provisions of 12 CFR 345.1(h)(1)(i) exclude home mortgage, small business, small farm, or consumer loans "reported or collected" by banks "for consideration in the banks' assessment." If this is intended to refer only to the use of these loans under the "lending test" under 12 CFR 345.22 for banks with assets exceeding $1 billion, we have no objection. However, if this exclusion also intends to exclude all such loans from being counted in evaluating the proposed "community development criterion," then we would object and request that the FDIC amend the regulation to clarify that the loans that are at the heart of what our members do – direct loans to the individuals and businesses in the community - will be counted in the evaluation of the "community development criterion."

We also have concerns about creating a separate criterion that apparently will be evaluated entirely apart from the small bank performance standards in 12 CFR 345.26. The current rule recognizes correctly that community development efforts are part and parcel of a small bank's overall effort to meet the credit needs of its community, including low and moderate-income neighborhoods. To separate the narrower community development component from the overall effort may effectively lower the value placed on a bank's efforts to make traditional loans to residents of and businesses in the low and moderate-income neighborhoods. However, it is the traditional loans to such constituencies that are essential to the well being of the neighborhoods. It is also the kind of credit mat our members generally are able to provide within the limited resources available to them.

If the FDIC decides to adopt the "community development criterion," NBA has two additional suggestions. First, we suggest that institutions with assets between $250 million and $500 million be excluded from the "community development criterion" since the existing rules under 12 CFR 345.26(a)(l) already incorporate, as part of the small bank performance standards, a community development component. Banks of this size normally will not have the expertise to make the kind of investments that is conjured up by reference to "community development loans" or investments.

Second, we suggest that the FDIC make clear in its amended rule that for purposes of applying the "community development criterion," banks may balance their community development lending, investing and service activities based on the opportunities in the market and the banks' own strategic strengths, and that banks may perform well under the community development criterion by engaging in one or more as opposed to all of the activities.

The FDIC stated this in the prefatory material to the proposed rule, but did not incorporate the language into the rule itself.

In addition to the comments discussed above, we request that in the context of broadening the ambit of community development activities, the FDIC consider explicitly addressing the role played by financial intermediaries such as Community Development Financial Institutions ("CDFIs"), Community Development Corporations ("CDCs") and minority- and women-owned financial institutions in the CRA regime.

More specifically, the FDIC should consider amending the definition of "qualified investment" in 12 C.F.R. § 345.12(t) to clarify that a "qualified investment" would include, without limitation, an investment, grant, deposit or shares in or to: (1) financial intermediaries (including, (1) CDFIs; (2) CDCs; (3) minority- and women-owned financial institutions; (4) community loan funds and (5) low-income or community development credit unions) that primarily lend or facilitate lending in low- and moderate-income areas or to low- and moderate-income individuals in order to promote community development (collectively, the "Qualified Financial Intermediaries"). Furthermore, the FDIC also should consider amending the definition of "community development loan" in 12 C.F.R. § 345.12(h) to clarify that a "community development loan" would include, without limitation, a loan to a Qualified Financial Intermediary.

We understand that by amending the CRA regulations as outlined above, the FDIC would only be expressly including provisions that have already been highlighted in the FDIC's Interagency Questions and Answers Regarding Community Reinvestment ("Interagency Questions and Answers").1 Nevertheless, an explicit reference to Qualified Financial Intermediaries in the CRA regulations would have the force of law and would otherwise be desirable for a number of reasons. First, such an amendment would be consistent with the spirit of the CRA regulatory scheme of encouraging insured banks and thrifts to help meet the credit needs of low-income communities. Second, it would be in keeping with the steps historically taken by the FDIC to preserve and encourage minority ownership of insured financial institutions.

Finally, an explicit reference in the CRA regulations to minority-owned financial institutions would be a strong tool for minority-owned financial institutions in their efforts to solicit capital investments from larger financial and non-bank institutions.2

Sincerely,
Norma Alexander Hart
President
_______________________________________
1See 66 FR 36620 (July 12, 2001).


Last Updated 11/08/2004 regs@fdic.gov

Last Updated: August 4, 2024