CITIZENS STATE BANK
March 16, 2004
Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Re: 12 CFR Part 345
RE: Proposed Revisions to the Community Reinvestment Act Regulations
Dear Mr. Feldman:
I am writing to support the federal bank regulatory agencies'
(Agencies) proposal to enlarge the number of banks and savings
associations that will be examined under the small institution Community
Reinvestment Act (CRA) examination. The Agencies proposed to increase
the asset threshold from $250 million to $500 million and to eliminate
any consideration of whether the small institution is owned by a holding
company. This proposal is clearly a major step towards an appropriate
implementation of the Community Reinvestment Act and should greatly
reduce regulatory burden on those institutions newly made eligible for
the small institution examination, and I strongly support both of them.
When the CRA regulations were rewritten in 1995, the banking industry
recommended that community banks of at least $500 million be eligible
for a less burdensome small institution examination. The most
significant improvement in the new regulations was the addition of the
small institution CRA examination, which actually did what the Act
required: had examiners, during their examination of the bank, look at
the bank's loans and assess whether the bank was helping to meet the
credit needs of the bank's entire community. It imposed no investment
requirement on small banks, since the Act is about credit not
investment. It added no data reporting requirements on small banks,
fulfilling the promise of the Act's sponsor, Senator Proxmire, that
there would be not additional paperwork or recordkeeping burden on banks
if the Act passed. And it created a simple, understandable assessment
test of the bank's record of providing credit in its community: the test
considers the institution's loan-to-deposit ratio; the percentage of
loans in its assessment area; its record of lending to borrowers of
different income levels and businesses and farms of different sizes; the
geographic distribution of its loans; and its record of taking action,
if warranted, in response to written complaints about its performance in
helping to meet credit needs in its assessment areas.
Since then, the regulatory burden on small banks has only grown
larger, including massive new reporting requirements under HMDA, the USA
patriot Act and the privacy provisions of the Gramm-Leach-Bliley "Act,
But the nature of community banks has not changes. When a community bank
must comply with the requirements of the large institution CRA
examination, the costs to and burdens on that community bank increase
dramatically, In looking at my bank, converting to the large institution
examination requires, among other things, re-assigning major jobs to
additional new staff members to the cost of more than $100 thousand
dollars, so the CRA officer could re-structure our present system,
recode all census areas and write new programs to tract this information
needed for reporting, which we currently do not do. This imposes a
dramatically higher regulatory burden that drains both money and
personnel away from helping to meet the credit needs of the
institution's community.
I believe that it is as true today as it was in 1995, and in 1977
when Congress enacted CRA, that a community community bank is typically
non-complex; it takes deposits and makes loans. Its business activities
are usually focused on small, defined geographic areas where the bank is
known in the community. The small institution examination accurately
captures the information necessary for examiners to asses whether a
community bank is helping to meet the credit needs of its community, and
nothing more is required to satisfy the Act.
As the Agencies state in their proposal, raising the small
institution CRA examination threshold to $500 makes numerically more
community banks eligible. However, in reality raising the asset
threshold to $500 million and eliminating the holding company limitation
would retain the percentage of industry assets subject to the large
retail institution test. It would decline only slightly, from a little
more than 90% to a little less than 90%. That decline, though slight,
would more closely align the current distribution of assets between
small and large banks with the distribution that was anticipated when
the Agencies adopted the definition of "small institution." Thus, the
Agencies, in revising the CRA regulation, are really just preserving the
status quo of the regulation, which has been altered by a drastic
decline in the number of banks, inflation and an enormous increase in
the size of large banks. I believe that the Agencies need to provide
greater relief to community banks than just preserve the status quo of
this regulation.
While the small institution test was the most significant improvement
of the revised CRA, it was wrong to limit its application to only banks
below $250 million in assets, depriving many community banks from any
regulatory relief. Currently, a bank with more than $250 million in
assets faces significantly more requirements that substantially increase
regulatory burdens without consistency producing additional benefits as
contemplated by the Community Reinvestment Act. In today's banking
market, even a $500 million bank often has only a handful of branches. I
recommend raising the asset threshold for the small institution
examination to at least $1 billion. Raising the limit to $1 billion is
appropriate for two reasons. First, keeping the focus of small
institutions on lending, which the small institution examination does,
would be entirely consistent with the purpose of the Community
Reinvestment Act, which is to ensure that the Agencies evaluate how
banks help to meet the credit needs of the communities they serve.
Second, raising the limit to $1 billion will have only a small effect
on the amount of total industry assets cover under the more
comprehensive large bank test. According to the Agencies' own findings,
raising the limit from $250 to $500 million would reduce total industry
assets covered by the large bank test by less than one percent.
According to December 31, 2003, Call Report data, raising the limit to
$1 billion will reduce the amount of assets subject to the much more
burdensome large institution test by only 4% (to about 85%). Yet, the
additional relief provided would, again, be substantial, reducing the
compliance burden on more than 500 additional banks and savings
associations (compared to the $500 million limit). Accordingly, I urge
the Agencies to raise the limit to at Ieast $1 billion, providing
significant regulatory relief while, to quote the Agencies in the
proposal, not diminishing "in any way the obligation of all insured
depository institutions subject to CRA to help meet the credit needs of
their communalities. Instead, the changes are meant only to address the
regulatory burden associated with evaluating institutions under CRA."
In conclusion, I strongly support increasing the asset-size of banks
eligible for the small bank streamlined CRA examination process as a
virtually important step in revising and improving the CRA regulations
and in reducing regulatory burden. I also support eliminating the
separate holding company qualification for the small institution
examination, since it places small community banks that are part of a
larger holding company at a disadvantage to their peers and has no legal
basis in the Act. While community banks, of course, still will be
examined under CRA for their record of helping to meet the credit needs
of their communities, this change will eliminate some of the most
problematic and burdensome elements of the current CRA regulation from
community banks that are drowning in regulatory red-tape.
Sincerely,
Carol A. Shinska
2nd Vice President
Citizens State Bank
Chesterfield, MI
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