FDIC Federal Register Citations

September 16, 2004

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

Re: RIN 3064-AC50

Dear Mr. Feldman,

I am employed by Banklowa, which is located in rural Iowa with assets of approximately $300 million. Banklowa has been subject to the large bank CRA exam since January 1, 2002. We appreciate this opportunity to comment on the notice of proposed rulemaking regarding the Community Reinvestment Act (CRA).

We support the Federal Deposit Insurance Corporation's (FDIC) proposal to change the definition of "small bank" from the current asset threshold of $250 to the proposed total assets of $1 billion, without regard to holding company affiliation. The overall impact of this change for Iowa would result in only 32 additional supervised financial institutions being treated as small banks for CRA examination purposes. This change would significantly decreased the regulatory compliance burden for these institutions, affording these institutions to allocate resources-previously dedicated to regulatory compliance to delivery of products and services within their communities.

However, we cannot support the proposed changes to the small bank performance standards, which would include a "community development criterion" for institutions with assets greater than $250 million and up to $1 billion. This additional performance standard would defeat an original intent of the February 6, 2004 interagency Notice of Proposed Rulemaking (NPR), that being to "reduce unwarranted burden consistent with ongoing efforts to identify and reduce regulatory burden where appropriate and feasible..." Banks hoping to take advantage of channeling new-found resources into lending, investment and services available to their local communities would instead channel those resources back into regulatory compliance efforts to evidence the banks' participation in community development loans, investments and services.

Under existing examination practices, small institutions are evaluated on their records of lending to borrowers of different income levels and businesses and farms of different sizes, focusing primarily on lending activity within the institutions' delineated assessment area. The FDIC's own discussion in this proposal admits its concern that smaller institutions presently covered by the large bank tests have noted difficulties with making qualified investments, including the difficulty in competing with larger banks for limited investment opportunities and maintaining staff and resources to do so. The addition of the "community development criterion" for small banks would place these institutions right back into the difficult position they have historically found themselves when being evaluated previously under the large bank tests.

In addition, under existing interagency CRA Q&A's, examiners can consider "lending-related activities," including community development loans and lending-related qualified investments, when evaluating the first four performance criteria of the small institution test." Q&A 26(a)-1, 66 FR at 36637. Another Q&A states that examiners will consider these types of lending-related activities "when it is necessary to determine whether an institution meets or exceeds the standards for a satisfactory rating" or "at an institution's request." Q&A 26(a)-2, 66 FR at 36637. Yet another describes that the "small institution performance standards focus on lending and other lending-related activities. Therefore, examiners will consider only lending-related qualified investment for the purposes of determining whether the small institution receives a satisfactory CRA rating." Q&A 26(a)-5, 66 FR at 36637. So the "community development criterion" already exists under existing interagency examination guidance, allowing small institutions' performance in making community development loans and qualified investments to positively impact their overall CRA ratings. We find little to be gained by adding express "community development criterion" to small bank performance standards.

Iowa banks take seriously the spirit and intent of the Community Reinvestment Act, recognizing that no community bank will survive without meeting the needs of its customers and communities. We urge you to allow banks to dedicate as much of their resources as possible to meeting those needs, affording banks with total assets up to $1 billion to be considered "small banks" and enjoy the existing streamlined test for "small bank" CRA performance.

Thank you for the opportunity to comment, and your consideration of such. Feel free to contact me should you have questions related to these comments.

Sincerely,
Bryan Palmer
Vice President, Commercial Lending
BankIowa, Independence, IA