| Farmers & Merchants
State Bank April 5, 2004
Robert Feldman, Executive Secretary
ATTN : Comments
Federal Deposit Insurance Corporation
550 17th Street NW
Washington, DC 20429
RE: 12 CFR 345 – Proposed Amendments to the Community Reinvestment
Act Regulations
Dear Mr. Feldman:
As a community bank, we strongly endorse the federal regulators'
proposal to expand the number of financial institutions that will be
examined under the streamlined small institution examination provisions
of CRA. Your proposal achieves this result by increasing the asset
threshold of banks that would qualify as community institutions from
$250 million to $500 million and disregarding ownership by a bank
holding company. This proposal will greatly reduce regulatory burden.
The Farmers & Merchants State Bank is a $715 million independent,
community bank located in Archbold, Ohio serving a rural, but
industrialized five-county area in northwest Ohio. While we strongly
support your proposal in its current form, we would we would urge you to
consider extending the benefits of your amendments by raising the asset
threshold even further to $1 billion. When a bank must comply with the
requirements of the large bank CRA evaluation process, the costs and
burdens increase dramatically. Resources devoted to CRA compliance are
resources not available for meeting the credit demands of the community
we serve.
The small bank examination process is a simple, straightforward
analysis of whether a community bank is meeting the credit needs of its
community. Many traditional CRA tests like the investment test or the
service test are not relevant for community banks. The business of
community banking revolves around making loans in their communities.
Plus, the regulatory burdens fall disproportionately on small banks that
don't have the staff, software, or the expertise to comply with the more
complex CRA test and data coding requirements. Finally, and perhaps more
importantly, a true community bank will not survive if it is not
responsive to the borrowing needs of its entire community.
Since the CRA regulations were last updated the regulatory burdens
on small banks have grown much larger.. including new reporting
requirements under HMDA, the USA Patriot Act, and the new privacy
requirements under Title V of Gramm-Leach-Bliley. The nature of
community banking has, however, not changed. Community banks have less
staff and fewer resources to comply with this ever-increasing compliance
burden. Your proposal is an opportunity to help stem this
ever-increasing tide of regulatory costs, and ensure that community
banks can survive, so they will be around to help serve the needs of
their communities. The streamlined exam for smaller institutions
accurately captures the information necessary for examiners to assess
whether a community bank is meeting the credit needs of its community.
Nothing more is required to satisfy the requirements of the Community
Reinvestment Act.
Ironically, community activists seem oblivious to the costs and
burdens of CRA compliance. And yet, they object to bank mergers that
remove the local bank from the community. This is contradictory. If
community groups want to keep the local banks in the community where
they have better access to decision-makers, they must recognize that
regulatory burdens are strangling these institutions and forcing them to
consider selling to larger institutions that can better manage the
burdens.
There are many valid reasons for raising this threshold and expanding
the application of the streamlined CRA test even further than initially
proposed. First of all, raising the threshold in this fashion will still
leave the vast majority of the assets in the banking system under more
complex CRA analysis. Nationally, increasing the threshold to $1 billion
will add only 524 financial institutions to the small bank exam program.
The proposal as published in the Federal Register will exempt 9% of
banking assets, and the more expansive exemption we suggest would only
expand that to 11% of banking assets. Second, increasing the threshold
will keep the focus of community banks on local lending. This is
consistent with the requirements of the Community Reinvestment Act, and
what policymakers should want as our nation works through a jobless
recovery. Exempting those additional institutions will turn loose
additional lending resources, particularly in smaller communities, which
our institution presently serves. In America's smaller towns the only
economic engine to invest in new jobs and new growth is the local
financial institution.
In conclusion, the Farmers & Merchants State Bank strongly supports your
proposal to increase the asset threshold for banks to be eligible for
the streamlined CRA exam. For the reasons stated, we would further
encourage urge you to go beyond maintaining the status quo by expanding
the exemption to, include community banks with assets up to $1 billion.
Updating the CRA regulations will still enable regulators to fulfill
their responsibility under CRA to ensure that all banks are helping to
meet the credit needs of their community. This action, however, will
remove some of the most problematic and burdensome elements of the
current CRA regulation that is drowning community banks in regulatory
red tape.
Edward A. Leininger
EVP/Chief Operating Officer
Marilyn K. Johnson
AVR/Compliance & CRA Director
Farmers & Merchants State Bank
307-11 North Defiance Street
Archbold, OH |
