WASHINGTON REINVESTMENT ALLIANCE
August 31,
2004
Mr.
Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th St. NW
Washington, DC 20429
RE: RIN 3064-AC50
Dear Mr. Feldman:
As a member of the National Community Reinvestment Coalition, the
Washington Reinvestment Alliance urges you to withdraw your proposed
changes to the Community Reinvestment Act (CRA) regulations. 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. Your proposed
changes are contrary to the CRA statute and Congress' intent because
they will slow down, if not halt, the progress made in community
reinvestment.
The proposed changes will thwart the Administration's goals of improving
the economic status of immigrants and, creating 5.5 million new minority
homeowners by the end of the decade. Since FDIC Chairman Powell,
a Bush Administration appointee, is proposing the changes, the sincerity
of the Administration's commitment to expanding homeownership and
economic development is called into question. How can an administration
hope to promote community revitalization and wealth building when
it proposes to dramatically diminish banks' obligation to reinvest
in their communities?
Under the current CRA regulations, banks with assets of at least
$250 million are rated by performance evaluations that scrutinize
their level of lending, investing, and services to low- and moderate-income
communities. The proposed changes will eliminate the investment and
service parts of the CRA exam for state-charted banks with assets
between $250 million and $1 billion.. In place of the investment
and service parts of the CRA exam, the FDIC proposes to add a community
development criterion. The community development criterion would
require banks to offer community development loans, investments or
services.
The community
development criterion would be seriously deficient as a replacement
for the investment and service tests. Mid-size banks
with assets between $250 million and $1 billion would only have to
engage in one of three activities: community development lending,
investing or services. Currently, mid-size banks must engage in
all three activities. Under your proposal, a mid-size bank can
now choose a community development activity that is easiest for
the bank instead of providing an array of comprehensive community
development activities needed by low-and moderate-income communities.
The proposed community development criterion will result in significantly
fewer loans and investments in affordable rental housing, Low-Income
Housing Tax Credits, community service facilities such as health
clinics, and economic development projects. It will be too easy for
a mid-size bank to demonstrate compliance with a community development
criterion by spreading around a few grants or sponsoring a few homeownership
fairs rather than engaging in a comprehensive effort to provide community
development loans, investments, and services.
Your proposal would make 879 state-chartered banks with over $392
billion in assets eligible for the streamlined and cursory exam.
In total, 95.7 percent or more than 5,000 of the state-charted banks
your agency regulates have less than $1 billion in assets. These
5,000 banks have combined assets of more than $754 billion. The combined
assets of these banks rival that of the largest banks in the United
States, including Bank of America and JP Morgan Chase. Your proposal
will drastically reduce, by hundreds of billions of dollars, the
bank assets available for community development lending, investing,
and services.
In the state of Washington, the FDIC regulates 74 institutions,
which control $59 billion in assets; of these institutions, 67 have
less than $1 billion in assets. These 67 smaller institutions control
30% of total assets. The proposed changes to the CRA would significantly
affect Washington state-25 of these 67 institutions have assets between
$250 million and $1 billion and control $14 billion, or 23% of total
assets in Washington. In rural Washington, 95% of the banks have
less than $1B in assets and would therefore qualify for streamlined
CRA exams. Please heed our request and withdraw your proposed changes
to the Community Reinvestment Act regulations.
The elimination of the service test will also have harmful consequences
for low- and moderate-income communities. CRA examiners will no longer
expect mid-size banks to maintain and/or build bank branches in low-
and moderate-income communities. Mid-size banks will no longer make
sustained efforts to provide affordable banking services, and checking
and savings accounts to consumers with modest incomes. Mid-size banks
will also not respond to the needs for the growing demand for services
needed by immigrants such as low cost remittances overseas.
Banks
eligible for the FDIC proposal with assets between $250 million and
$1 billion have 7,860 branches. All banks regulated by the
FDIC with assets under $1 billion have 18,811 branches. Your proposal
leaves banks with thousands of branches "off the hook" for
placing any branches in low- and moderate-income communities.
Another destructive
element in your proposal is the elimination of the small business
lending data reporting requirement for mid-size
banks. Mid-size banks with assets between $250 million and $1 billion
will no longer be required to report small business lending by census
tracts or revenue size of the small business borrowers. Without data
on lending to small businesses, it is impossible for the public at
large to hold the mid-size banks accountable for responding to the
credit needs of minority-owned, women-owned, and other small businesses.
Data disclosure has been responsible for increasing access to credit
precisely because disclosure holds banks accountable. Your proposal
will decrease access to credit for small businesses, which is directly
contrary to CRA's goals.
Lastly, to make matters worse, you propose that community development
activities in rural areas can benefit any group of individuals instead
of only low- and moderate-income individuals. Since a significant
number of rural residents are affluent, your proposal threatens to
divert community development activities away from the low- and moderate-income
communities and consumers that CRA targets. Your proposal for rural
America merely exacerbates the harm of your proposed streamlined
exam for mid-size banks. Your streamlined exam will result in much
less community development activity. In rural America, that reduced
amount of community development activity can now earn CRA points
if it benefits affluent consumers and communities. What's left over
for low- and moderate-income rural residents are the crumbs of a
shrinking CRA pie of community development activity.
In sum, your proposal is directly the opposite of CRA's statutory
mandate of imposing a continuing and affirmative obligation to meet
community needs. Your proposal will dramatically reduce community
development lending, investing, and services. You compound the damage
of your proposal in rural areas, which are least able to afford reductions
in credit and capital. You also eliminate critical data on small
business lending. Two other regulatory agencies, the Federal Reserve
Board and the Office of the Comptroller of the Currency, did not
embark upon the path you are taking because they recognized the harm
it would cause.
If your agency was serious about CRA's continuing and affirmative
obligation to meet credit needs, you would be proposing additional
community development and data reporting requirements for more banks
instead of reducing existing obligations. A mandate of affirmative
and continuing obligations implies expanding and enlarging community
reinvestment, not significantly reducing the level of community
reinvestment.
CRA is too vital to be gutted by regulatory fiat and neglect. If
you do not reverse your proposed course of action, we will ask that
Congress halt your efforts before the damage is done.
Sincerely,
Sharon Lee
Washington
Reinvestment Alliance
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