STATE BANK OF SOUTHERN UTAH
From: David Eberhard
Sent: Thursday, September 16, 2004 11:59 AM
To: Comments
Subject: Community Reinvestment -- RIN 3064-AC50
Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington DC 20429
RE: RIN 3064-AC50
Mr. Feldman,
Thank you again for the opportunity to comment on the revisions to
the Community Reinvestment Act (CRA). I applaud the agency's attention
to the comments received from the February 2004 Notice of Proposed
Rulemaking. I submitted a comment letter then and I now am pleased to
comment on the new proposal.
I work for a medium size bank, the sole subsidiary of a bank holding
company, with about $375 million in assets and 13 offices located in
southwestern Utah. For CRA purposes, we became a large bank on January
1, 2003 and just recently completed our first large bank CRA exam. As I
stated in my previous comment letter, the exam under the large bank
rules, I would estimate, took about 10 times longer than the small bank
exam would have taken, with substantially the same result.
I believe this proposal is clearly a positive and much needed step
towards an appropriate implementation of the Community Reinvestment Act
and would greatly reduce regulatory burden on those institutions newly
made eligible for the small institution examination. I strongly support
the proposal to increase the small bank examination threshold to $1
billion. I believe that raising the threshold to $1 billion would help
small banks keep the focus on lending which is consistent with the
purpose of CRA.
As stated in the comment letters, community organizations generally
expressed concerns about the likely effects of the proposed change on
residents of rural communities and residents of states with smaller
financial institutions. These concerns are not well founded, at least
not with the experience of our bank. We are located in rural
southwestern Utah and serve a number of small communities. In fact,
three of our thirteen offices are located in communities that have no
other financial institutions. All of those offices were constructed
prior to becoming a large bank for CRA purposes. We did not build those
offices for CRA credit, but to accommodate individuals and businesses in
those communities and to operate as a community bank.
The community groups, according to their comment letters, were
concerned that if the threshold is increased, banks such as ours would
no longer be held accountable under CRA exams for investing in products
such as Low Income Housing Tax Credits. As a matter of fact, a few years
prior to becoming a large bank for CRA purposes, our bank participated
in Low Income Housing projects that benefited one of our larger
communities. This was not to fulfill a requirement of the regulation,
but a result of being aware of the financial needs of ourcommunity and
fulfilling those needs. Again I believe their concerns are not well
founded.
The FDIC has proposed to create a "Community Development Criterion"
for banks between $250 million and $1 Billion. The community development
criterion would be an additional requirement above the current Small
Bank requirements. A bank could meet the community development criterion
by engaging in one or more of community development lending, qualified
investment, or community development service activities. For true
regulatory reduction for community banks, the FDIC should increase the
small bank threshold to $1 billion without any additional requirements.
The consideration of community development activities has always been
part of the CRA evaluation process regardless of size. Increasing the
threshold for the small bank examination will not absolve a bank of this
requirement. The additional community development criterion is not
needed or warranted. Because we are a community bank, reverting from a
large bank to small bank will not change what we are currently doing; it
will just change the amount of documentation and paperwork we have to do
for the current large bank examination procedures and greatly reduce the
regulatory burden.
Under the proposal with the community development criterion, the
rating for a bank between $250 million and $1 billion will include
whether the bank has had adequate responsiveness to community
development needs through community development lending, qualified
investments, or community development services in its assessment area.
What is going to
be required to show "responsiveness" and whether it was "adequate" and
who is going to determine those "needs?" I'm afraid that if adopted,
this community development criterion will take on a life of its own,
become an ambiguous and subjective examination procedure, and
realistically detract from the true objective of CRA to meet the credit
needs of the entire community. Thus I am generally opposed to the
community development criterion as proposed.
As we are located in rural southwestern Utah, we would gladly support
the inclusion of activities and services in rural communities as part of
the community development definition. Prior to the 2000 census, many of
the communities were in moderate-income census tracts. However, since
the change in the year 2000 census tracts, many of those communities
have been classified as located in middle-income census tracts.
Investments and service in those communities now does not automatically
apply since they are not in low- or moderate-income census tracts.
Including rural areas as part of the community development definition
will help us show that we meet the investment and service criteria.
As I stated in my previous comment letter, the most futile part of
the large bank examination was the examination and verification of our
investments for the investment test. Being a medium size bank serving
rural areas, we find it difficult to find truly "qualified investments"
for CRA purposes. Under the current rules, for a municipal bond to
qualify for community development, the municipal bond must be issued to
fund public improvements that stabilize and revitalize a low- or
moderate-income neighborhood. As I stated above, because of the
reclassification from the 2000 census, most rural communities we service
are not located in low- or moderate-income census tracts. In addition, a
rural community will not spend the time to specifically designate such a
bond for a community development purpose. (These rural communities
believe this is a waste of time because everything they do is community
development to them). I applaud the FDIC for responding to my concern by
now proposing that rural areas be included as part of the community
development definition. This will greatly alleviate much of the burden
associated with the investment requirement for CRA.
The FDIC asks whether a definition of "rural" would be helpful, and
if so, how that term should be defined. I believe a definition would be
helpful and needs to be provided. I recommend the FDIC adopt a
definition similar to the Census Bureau's definition. The Census Bureau
defines an urban area as a densely settled area that has a census
population of over 2,500 and consists of blocks that have a population
density of at least 1,000 people per square mile and surrounding blocks
that have an overall density of at least 500 people per square mile.
The Census
Bureau's web site also has maps that show urban areas. The problem that
I can see is that a single census tract may contain a mixture of both
urban and rural areas. This will cause additional work in determining
whether a property is rural. There are also some anomalies included with
this definition. For example, Blanding, Utah is a rural community with a
population of less than 3,000 residents. Blanding is
located in extreme southeastern Utah, more than 100 miles from the
nearest Interstate highway. However, according to the Census Bureau's
definition, Blanding is NOT considered rural because of the denseness of
the population. Because of these anomalies, I would recommend a modified
definition of the Census Bureau's definition so that a community with a
population of less than 5,000 would otherwise be considered rural for CRA purposes.
In conclusion, let me just restate that I strongly support the
increased threshold for the small bank examination to $1 billion. I am
opposed to the addition of a community development criterion because of
the additional burden it will impose, the criterion may be too
subjective, and I do not think it is warranted because community
development activities have always been and will continue to be part of
the CRA evaluation process, regardless of size. Finally, I support the
inclusion of rural areas as part of the community development
definition.
Please feel free to contact me if I could be of further assistance.
Thank you,
David Eberhard
State Bank of Southern Utah
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