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UNITED COMMUNITY BANK OF LISLE
October 5, 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 Examination
Dear Mr. Feldman:
I am President and CEO of United Community Bank of Lisle, Lisle,
Illinois. We are a growing, state-chartered Fed-member bank. Our
one-bank holding company, United Financial Holdings, Inc., enjoys a wide
ownership by various members of our community. At year-end 2003, our
total assets were $211 million and we presently meet the definition of a
“small bank” pursuant to the Federal Reserve’s CRA regulations. During
2004, we have grown to more than $250 million in assets. As we are right
on the cusp of being evaluated as a large bank for CRA purposes, we have
followed the regulatory debate regarding CRA thresholds with keen
interest.
While we are not directly subject to the FDIC’s regulation in this
matter, I am writing to strongly support the FDIC's proposal to raise
the threshold for the streamlined small bank CRA examination to $1
billion without regard to the size of the bank's holding company.
Hopefully, the Federal Reserve will follow the FDIC’s lead in this
regard. The FDIC’s proposal would greatly relieve the regulatory burden
imposed on many small banks such as my own under the current regulation.
These smaller institutions are presently required to meet the standards
imposed on the nation's largest $1 trillion banks. We understand that
this is not an exemption from CRA and that such banks would still have
to help meet the credit needs of their entire community and be subject
to regulatory evaluation. However, I believe that this would lower the
current regulatory burden significantly. One of the reasons we made the
word “Community” a part of our name was to reflect our strong commitment
to that community. We are proud of our record of community reinvestment
and, consistent with safe and sound operation of the bank, we will
continue to meet the credit needs of our entire community, including
low- and moderate-income neighborhoods, no matter what the regulatory
framework requires. I further believe that we are not alone – a positive
attitude and commitment to community support pervades the industry. This
is particularly true of banks under $1 billion, as these institutions
largely rely on their communities for their very existence. FDIC
Chairman Powell recently highlighted the two-tier nature of the banking
industry. Community banks of all sizes will continue to support their
communities, not only out of a sense of duty, but because doing so is
the linchpin of their business model.
I also support the addition of a community development (CD) criterion
to the small bank examination for larger community banks. It appears to
be a significant improvement over the investment test. However, I urge
the FDIC to adopt its original $500 million threshold for small banks
without a CD criterion and only apply the new CD criterion to community
banks greater than $500 million up to $1 billion. Banks under $500
million now hold about the same percent of overall industry assets as
community banks under $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 has proven extremely 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. That was certainly
not intent of Congress when it enacted CRA.
An additional reason to support the FDIC's CD criterion is that it
significantly reduces the current regulation's "cliff effect." Our
institution is perched on that cliff even as we speak. 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
streamlined small bank examination, with the flexibility to mix
Community Development loans, services and investments to meet the new CD
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.
I strongly oppose making the CD criterion a separate test from the
bank's overall CRA evaluation. For a community bank, CD lending is not
significantly different from the provision of credit to the entire
community. The current small bank test considers the institution's
overall lending in its community. 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 that would erode the benefit of the streamlined exam.
In conclusion, I believe that the FDIC has proposed a major
improvement in the CRA regulations, one that much more closely aligns
the regulations with the Community Reinvestment Act itself, and I urge
the FDIC to adopt its proposal, with the recommendations above. I would
be happy to discuss these issues further with you, if that would be
helpful.
Sincerely,
James I. McMahon
President/CEO
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