FDIC Federal Register Citations

September 17, 2004

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

Re: CRA Proposal on Small Bank Exemption RIN number 3064-AC50

Dear Mr. Feldman:

Visalia Community Bank (VCB), a small community bank established in 1977, appreciates this opportunity to comment on the FDIC proposals relating to the Community Reinvestment Act.

Asset 'Threshold

As a small yet growing community bank, VCB strongly supports increasing the asset size limit below which banks are eligible for less complex CRA examinations. It remains a viable presumption today that a small bank meets the credit needs of its community if it makes a certain amount of loans relative to deposits taken. A small bank is typically non-complex; it takes deposits and makes loans. Its business activities are usually focused on small, defined geographic areas where the bank is known in the community. This is certainly VCB's case.

I agree with the agencies' observations that raising the threshold is justified given substantial asset growth and consolidation in the industry. This reasoning is doubly appropriate in a more populous state such as California; where- a single branch can exceed the current $250 million threshold. It is also appropriate to 'disregard the existence of bank holding companies when setting the limit, as this factor has little or-no' bearing on whether or how a bank meets the credit needs of its community.

Under the existing rules, a bank with more than $250 million in assets faces many additional requirements that substantially increase regulatory burdens without necessarily producing additional benefits as contemplated by the Community Reinvestment Act. I believe that some of these requirements, such as the investment and service tests, and the recordkeeping and reporting requirements are not specifically authorized by the statute. At any rate, under the current rules banks as small as $251 million in assets are, in concept, subject to the same requirements as banks a thousand times larger.

Regardless of where the limit is set, I recognize it is unavoidable currently that banks above and below the limit are treated radically differently. This cliff effect is moderated to a degree by applying the concept of performance context but, at present, it is inescapable that the amount of time that a "large" institution close to the limit spends to comply with the regulation is disproportionate to the beneficial activities actually taken within the communities served. I believe a more rational, long term solution is to phase in specific regulatory requirements more gradually based on different asset-size ranges.

Until such time, I strongly support adjusting the threshold to $1 billion in assets without regard to holding company affiliation. The fact that the Office of Thrift Supervision has done so makes it all the more imperative that the FDIC, as well as the other federal agencies, act consistently. It would constitute poor banking policy for similarly situated depository financial institutions to be subject to significantly different standards. I urge the FDIC to work with the other agencies to forge a single rule in order to eliminate this significant disparity.

Community Development Activities

As an offset to raising the threshold, the FDIC is also proposing to add a mandatory community development performance criterion for banks with assets greater than $250 million and up to $1 billion. I appreciate that the FDIC expresses concern that smaller banks presently covered by the large bank tests have difficulties with making qualified investments, including the ability to compete with larger banks for investment opportunities and maintaining staff and resources to do so. Presumably, FDIC-supervised banks in this asset range would not be held to the same standards in this regard as large banks are presently held.

I am uncertain how the proposed mandatory criterion would differ from the "performance context" analysis that is already used. The CRA regulations already feature flexibility by considering mandatory requirements in light of the performance context in which each bank operates. Unless the proposal applicable to banks between $250 million and $1 billion in assets is significantly less onerous than the existing rules for large banks, the benefits of adjusting the asset threshold would be greatly diminished.

The FDIC also proposes to amend the definition of "community development," which now focuses on activities that benefit low- and moderate-income individuals, to include individuals who reside in rural areas. VCB fully supports this proposal because it provides banks more flexibility. We agree that the provision of banking services to rural areas, in addition to low- and moderate-income individuals, is an appropriate focus.

I appreciate the opportunity to provide this comment letter. I reiterate that VCB supports any efforts to reduce unnecessary burdens associated with CRA compliance. Raising the "large institution" limit is a significant step forward in this regard. Please do not hesitate to call the undersigned if you have any questions.

Sincerely,
Tom Beene
President & CEO
Visalia Community Bank