FDIC Federal Register Citations

1st National Bank

September 16, 2004

Mr. Robert E. Feldman
Executive Secretary
A ttention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429 I

Re: RIN Number 3064-AC50: FDIC Proposed Increase in the Threshold for the Small Bank CRA Streamlined Exam

Dear Mr. Feldman:

As a community banker, I join my fellow community bankers throughout the nation in strong support of the FDIC's proposal to increase the asset size of banks eligible for the streamlined small-bank CRA examination. I also strongly support the elimination of the separate holding company qualification.

The proposal will greatly alleviate unnecessary paperwork and examination burden without weakening our commitment to reinvest in our communities. Reinvesting in our communities is something we do everyday as a matter of good business and survival. My community bank will not long survive if my local community doesn't thrive, and that means my bank must be responsive to community needs and promote and support community economic development.

The existing CRA, its interpretation, and its enforcement have been flawed with respect to community. banks in the following ways:

• The amount of human and financial resources required to stay in compliance limits meaningful community activities and loans;
  
• The definition of "qualified investments" does not include the essential loans and investments to small rural communities because they are not solely for the benefit of low- and moderate-income individuals; and

• Allowing mega multi-national banks and money centers to take deposits from small economically distressed local communities and lend in large thriving urban areas, forcing community banks to bear all the lending and investment responsibility in those struggling communities, while at the same time, not getting credit for community developmental activities.

Making it less burdensome to undergo a CRA exam by expanding eligibility for the streamlines exam will not change the way my bank does business. In fact, it will free up human and financial resources that can be redirected to the community and used to make loans and provide other services. At present, we must spend $2400 annually to prove that we make the majority of our loans in our assessment area. We do not have any census tracts, according to the 2000 census, that are low- or moderate-income tracts. However, according to the size of the home loans and small business loans, it is clearly evident that we are meeting the needs of those individual and small businesses that the CRA requirements target.

The streamlined CRA exam is not an exemption from CRA, but rather a more cost effective and efficient exam. Banks subject to the streamlined exam are fully obligated to comply with the CRA and ensure they lend to all segments of their communities, including low- and moderate-income individuals and neighborhoods. It just doesn't make sense and is not equitable to evaluate a $500 million or a $1 billion bank using the same procedures as for the $100 billion or $500 billion bank.

Another problem with the CRA requirements for community banks is that we must invest in regional or statewide mortgage bonds in order to meet the "qualified investments" definition. However, these types of investments actually take funds out of the rural communities in favor of more urban areas. Community banks in rural areas should be able to meet the "qualified" definition by investing in "quality of life" improvements when low- and moderate-income housing projects are nonexistent. Community banks make loans and buy bonds for local projects, such as schools, senior citizen centers, street improvement equipment, fire trucks, medical clinics, playgrounds, infrastructure, and economic development. Many times banks donate the time of officers and other employees to assist with essential planning and governing of boards that oversee such projects. These resources should not be ineligible for CRA credit because they do not benefit only low-and moderate-income individuals or because the investment made is of essential in-kind services. Community banks and the communities they serve would be better off if the banks could truly invest their dollars locally to support their own local economies and residents.

For this reason, I find that the FDIC's proposed community development requirement for banks between $250 million and $1 billion is more flexible and appropriate than the large bank investment test. The advantage to this proposal is that it continues to focus on community development, but considers investments, lending and services. It would let community banks pursue community development activities that meet both the local community's needs and make sense in light of the bank's strategic strengths.

The proposal will also help rural banks meet the special needs of their communities by expanding the definition of "community d evelopment" so that it includes activities that benefit all rural residents instead of just low- and moderate-income individuals. The FDIC's proposed changes will help alleviate regulatory burden. Without these changes community banks like ours soon will be unable to sustain independent existence because of the crushing regulatory burden and unrealistic expectations. We will be forced to sell out. For many small towns and rural communities, the loss of the local bank is a major blow to the local community and economy.

Finally, multi-billion dollar banks take deposit dollars from the small rural communities and invest them in urban areas where there are large numbers of low- and moderate-income housing projects, in order to meet their CRA requirements. However, this practice deprives rural communities of the much needed economic development and services needed to attract new industry. Many of these areas are already economically depressed or distressed. The large banks make loans and investments in areas with stronger economies and better credit strengths. Yet community banks, if they are to make loans, are forced to make lower quality loans and bear all the burden of development. Large banks then come in and under bid our best loan prospects to businesses and municipalities because they can. That practice is unfair to the community banks that are meeting the other community needs. If large banks take deposit dollars from rural communities, they should be forced to reinvest in those same communities when there are well defined needs.

While I am very much in agreement with the proposed changes, I believe they should also address the flow of deposit dollars out of economically distressed communities to thriving urban areas. This practice has a very negative impact on communities and on the community banks that serve them. Please give this situation careful consideration.

Sincerely
De Leah Wade
Branch Manager