FDIC Federal Register Citations

September 17, 2004

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

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

Dear Mr. Feldman:

I'm writing to express our bank's strong support for the FDIC's proposal to increase the threshold for the streamlined small bank CRA examination to $1 Billion, without regard to the size of the bank's holding company. Even though this proposal would only have a direct impact on 14 Oklahoma banks, we believe it's something that's needed, both in Oklahoma and across the nation.

Contrary to the political spin by consumer groups, this proposal does not remove or exempt banks below $1 Billion from their CRA requirements. It will, however, reduce some of the costs smaller banks face in trying to live up to the same standards for CRA purposes that are imposed on large, money-center or regional multi-billion dollar banks. More to the point, it makes no sense to apply the same standards to small, community banks and to banks the size of J.P. Morgan-Chase, for CRA or any other purposes for that matter.

We join with the American Bankers Association in supporting the addition of a community development criterion to the small bank examination for larger community banks. However, we believe the FDIC should adopt its original $500 Million threshold without a Community Development (CD) criterion.

The new CD criterion should be applied only to banks greater than $500 Million up to $1 Billion. In our state that's six banks. Community banks up to $500 Million now hold about the same percent of overall industry assets as community banks up to $ 250 Million did a decade ago when the revised CRA regulations were adopted, so this adjustment in the CRA threshold is appropriate.

As FDIC examiners know, it's been difficult for small banks, especially those in rural areas, to find appropriate CRA qualified investments in their communities. Many small banks have had to make regional or statewide investments that are extremely unlikely to ever benefit the banks' own communities or its own customers. It seems clear to us that such a requirement makes absolutely no sense, and could not have been intended by Congress when it enacted the Community Reinvestment Act so many years ago.

Importantly, we strongly oppose making the CD criterion a test that's separate from the bank's overall CRA evaluation. Such differentiation creates the impression that CD lending is different from providing credit to the entire community. The current small bank test considers the institution's overall lending in its community, as it should. The addition of a category of CD lending (and services to aid lending and investments as a substitute for lending) fits well within the concept of serving the whole community. A separate test would create an additional CD obligation and regulatory burden, eroding what we believe to be the intent of the streamlined exam.

Finally, we strongly support the FDIC's proposal that would change the definition of "community development" to include rural residents and not just focus on low- and moderate-income area residents. This change will go a long way toward eliminating distortions in the current regulations that result in a small rural bank being told to invest in regional affordable housing bonds for an urban area not in the bank's community.

Sincerely,
Rick McSwain, President and CEO
Citizens State Bank
Stillwater, OK