FDIC Federal Register Citations

September 24, 2004

Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
55017th Street
Washington, D.C. 20429

Re: Community Reinvestment, RIN number 3064-AC50;
Proposal to Expand Eligibility for the Streamlined CRA Exam

Dear Mr. Feldman:

As a director of a $250 million community bank in West Palm Beach, Florida, with 13 years experience, I strongly support of the FDIC's proposal to increase the asset size limit of banks eligible for the streamlined small-bank CRA examination from $250 million to $1 billion and elimination of the separate holding company qualification. A $250 million bank is a very small bank in the world of banking. Even a '$1 billion bank is small. We have 70 employees, several of whom expend considerable time in the compliance function rather than engaging in selling our products and services. Should the FDIC CRA proposal not be adopted, our little bank will be considered a large bank under CRA resulting in additional regulatory burden and resultant expense.

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 our industry does everyday as a matter of good business. Grand Bank & Trust will not prosper if our local community does not thrive. For a bank to prosper it must be responsive to the needs of the entire community. Smaller banks have a tremendous record of promoting and supporting community and economic development. Making it less burdensome to undergo a CRA exam by expanding eligibility for the streamlined exam will not change the way we do business. In fact, it will free up human and financial resources that can be redirected to community endeavors and used to make loans and provide other services.

The streamlined CRA exam is not exemption from the Community Reinvestment Act. It is simply more cost effective, but efficient CRA exam. 'Banks subject to the simplified CRA exam are still fully obligated to comply with CRA. Just as now, banks would continue to be examined to ensure they lend to all segments of their communities, including low-income and moderate-income individuals and neighborhoods. It just does not make sense and is inequitable to evaluate a $500 million or $1 billion bank using the same exam procedures as for $100 billion $500 billion bank, or $1 trillion. Banks of $1 billion and less are insignificant compared to larger institutions, even as a group.

One of the problems with the current large bank CRA examination is that the definition of "qualified investments" is too limited, and qualified investments are often difficult to acquire. As a result, many banks, especially in rural areas, have to invest in regional or statewide mortgage or housing bonds and similar securities to meet CRA requirements. These investments may benefit other areas of the state or region, but they take resources away from the bank's local community. Communities would be better off if the banks could reinvest those dollars locally to support their local economies and residents.

An additional reason to support the FDIC's community development criterion is that it significantly reduces the current regulation's "cliff effect." Today, when a small bank goes over $250 million, it must completely reorganize its CRA program and begin) a massive new reporting, monitoring and investment program. If the FDIC adopts its proposal, a state nonmember bank would move from the small bank examination to an expanded but still streamline small bank examination, with the flexibility to mix Community Development loans, services and investments to meet the new Community Development criterion. This would be far more appropriate to the size of the bank, and far better than subjecting the community bank to the same large bank examination that applies to $1 trillion banks. This more graduated transition to the large bank examination is a significant improvement over the current regulation.

For this reason, I support FDIC's proposed community development requirement for banks between $250 million and $1 billion as 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 permits banks to pursue community development activities that both meet the local needs and make sense in light of the bank's strategic strengths.

Similarly, the proposal helps rural banks meet the special needs of their communities by expanding the definition of "community development" so that it includes activities that benefit rural residents as well as low- and moderate-income individuals. Rural banks are frequently called upon to support needed economic or infrastructure development such as school construction, revitalizing the business district, or loans that help create needed or better-paying jobs. These activities should not be ineligible for CRA credit because they do not benefit only low- or moderate-income individuals.

The FDIC's proposed changes to CRA are needed to help alleviate regulatory burden. Without changes such as this, more and more banks like mine will find they cannot sustain independent existence because of the crushing regulatory burden, and opt to sell out, usually to large conglomerates. This will be detrimental to the nation's banking system. For many small towns and rural communities, the loss of a community bank is a major blow. By easing regulatory burden, it will make it easier for community banks to continue to provide committed service to communities that few other financial service providers are willing to do. And we will continue to do business the way we always have: Serving the community well.

Thank you for considering my views.

Sincerely,
Sandy L. Costello, Director
Chairman of Audit Committee
Grand Bank & Trust
West Palm Beach, FL