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STATE OF CALIFORNIA DEPT OF JUSTICE
September 20, 2004
Mr. Robert E. Feldman Executive Secretary
Attn.: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, NW Washington, D.C. 20429
RE: RIN 3064-AC50 -- Comments to Proposed Revisions to Community
Redevelopment Act Examination Regulations.
Dear Mr. Feldman:
On behalf of the Attorney General for the State of California, I am
writing to urge the Federal Deposit Insurance Corporation (the "FDIC")
not to adopt its proposed revisions to its Community Reinvestment Act
(the "CRA") regulations. The CRA is the primary law that requires
FDIC-insured banks to serve the needs of low-, and moderate-income
communities. It has therefore been crucial to improving the lives of
those who inhabit the poorest California communities by increasing the
stock of low-income rental housing, increasing home and small business
ownership, and encouraging economic development. I am concerned about
the FDIC's proposed revisions primarily because they will reduce the
banks' obligations to serve such needs and adversely impact minority,
immigrant, rural, and other communities most in need of affordable
credit and community development services.
The FDIC's proposal will severely dilute the CRA's effectiveness by
vastly reducing the number of banks in California that must
demonstrate meaningful investment in communities of need. By enlarging
the definition of "small" bank to include banks with assets between $250
million and $1 billion, without regard to holding company affiliation,
FDIC-insured banks will
only be subject to a limited CRA examination -- and no longer be
accountable in any significant manner for complying with the CRA,
especially in the areas of investment and service. These banks will also
no longer be required to collect most data in the investment and service
areas, nor will they be required to annually report small business and
farm loan data, community development loan data, and home mortgage loan
data.
In lieu of a CRA examination of investment and service activities,
the FDIC proposes to examine these banks on community development
lending, investment or services. This proposal
is inadequate because banks will only be examined in one additional,
small subset of investment and service activities. In addition, this
proposal will allow banks in rural communities to demonstrate compliance
by providing community development loans, investments, or services to
any individual, regardless of his or her income or need -- thus
repealing a long time requirement that, in order to rate well on their
CRA performances, banks must address the community development needs of
the poorest and neediest rural communities.
According to the FDIC Statistics on Depository Institutions Database
(3/31/2004), this new "small bank" definition will most severely impact
California's rural populations. The number of state-chartered, FDIC
insured banks in rural California that will be exempt from the more
meaningful CRA examination requirements will increase by 33%, for a
total of 89% of such banks. Furthermore, in urban California, the number
of such banks entitled to the exemption will increase 25%, up to a total
of 84% of state-chartered, FDIC insured banks.
By cutting the majority of investment and service information upon
which such banks are examined, the following information will no longer
be taken into account by the FDIC in rating the community reinvestment
performance of these institutions:
• Amount and number of small business or farm loans by census tract
or revenue size of the small business borrowers;
• Loans and investments in homeownership, affordable rental housing,
health clinics, community services targeted to low- and moderate-income
individuals, and economic development projects, especially in rural
areas;
• The institution's branch distribution among communities of different
income levels; and
• The institution's record of opening and closing branches, particularly
in low- and moderate-income communities.
Moreover, removing the $1 billion holding company threshold from the
definition of small bank will create a potential loophole for large
holding companies to exploit when trying to evade CRA compliance. This
change raises the possibility that large holding companies will reform
their banking subsidiaries as a series of local "small banks" to avoid
the investment and service tests.
Overall, the FDIC's proposal will hinder, rather than further, the
CRA's statutory purpose of obligating banks to meet the community
development and credit needs of the communities in which they are
chartered. This proposal will most likely cause state-chartered,
FDIC-insured banks in California to dramatically reduce services
desperately needed by many rural, immigrant, minority, and low- and
moderate-income communities, including loans and investments in
homeownership, small businesses, small farms, affordable rental housing,
health clinics, community centers, and economic development projects. I
therefore urge the FDIC not to adopt the proposed revisions to its CRA
examination regulations.
Sincerely,
NINI REDWAY
Special Assistant Attorney General
For BILL LOCKYER Attorney Gener |
