SOUTHWEST BANK
August 24, 2004
Robert E. Feldman, Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
RIN #3064-AC50
Public Information Room
Office of the Comptroller of the Currency
250 E Street, SW
Mailstop 1-5
Washington, DC 20219
RIN #3064-AC50
Ms. Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
RIN #3064-AC50
Regulation Comments
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
RIN #3064-AC50
Re: RIN #3064-AC50 Small Bank CRA Threshold
Dear Sir or Madam:
Recently, I submitted a letter expressing my grave concern over the
Federal Reserve’s Notice 04-47, announcing that they were withdrawing
their recommendation to amend CRA. Now I would like to take this opportunity
to express my support of the FDIC’s new endeavor to amend the
CRA regulations in a way that hopefully will bring agreement between
all the agencies, the financial institutions who support the recommended
changes, and the community organizations who should be pleased to see
initiatives that will continue to support the efforts of community
banks to support both low-and-moderate income individuals as well as
individuals who live in rural areas. That specific segment of our communities
was over looked from the outset of these regulations, and hopefully
will now be brought into the same playing field as others.
In the prior letter, I was whole heartedly in favor of both an increase
in the definition of “Small Banks” (up to $1 billion) as
well as anything that can be done to continue to improve the alternatives
that are available to our rural communities to participate in community
development funds and programs. As I said earlier, “Let’s
raise the small bank definition to $1 billion, and let’s also
change the regulation to allow the community development capital to
go along with the increase. What is there to say that these rural communities
should be further penalized by not allowing them access to the capital
just because the reporting threshold is raised to a higher amount?”
Although small banks do not have to track and report their loans under
the current rules, data is available at the time of an exam to provide
examiners with the information on a limited segment of the bank’s
portfolio, to demonstrate it’s lending activities, as well as
it’s ability to make qualified investments and provide for other
banking activities and services provided in it’s assessment areas.
This information is available because most small banks (and large ones
too for that matter) can track their loans internally by some easy
coding method, without having to do excessive record keeping, financial
information tracking, etc. It is far easier to code our loans once
when they’re booked, and only have to look up a small amount
of additional information for specific loans or customers at the time
of an exam, then be subjected to excessive and expensive record keeping,
tracking and reporting, year after year after year.
The new NPR states that “we are proposing to add a mandatory
community development criterion for those small banks with assets over
$250 million, and we are proposing to amend the community development
definition to emphasize the importance of investments and services
in rural communities.” I would also like to quote from the FIDC’s
February 2004 NPR by stating the following: “Institutions’ capacities
to undertake certain activities, and the burdens of those activities,
vary by asset size, sometimes disproportionately. Examples include
identifying, underwriting, and funding qualified equity investments,
and collecting and reporting loan data.” With this in mind, I
believe the FDIC’s first idea of assessing a bank’s record
of helping to meet the needs of its assessment area(s) through a combination
of community development lending, qualified investments, or community
development services is something that most community banks could support.
Regarding the request for comments on the idea of “applying a
separate community development test”, I do not think this should
be undertaken until the financial institutions who will be affected
by a separate test, are given the opportunity to review the recommendations
and comment on them before they are implemented. Only the financial
institutions themselves can adequately express whether such a separate
test would be achievable within their own organizations. We should
not be faced with requirements that are not practical or are impossible
to achieve. And until the Regulators develop the test, I do not know
how any of us can answer the questions raised about weighing the activities
in assigning a performance rating or overall performance rating. One
last comment I would add is that I concur with the idea of amending
the definition of community development for rural communities.
Conclusion
The reporting and tracking requirements of becoming a “large” bank
versus a “small” bank are totally out of proportion in
relation to the benefit to “small” banks. The main purpose
served by the large bank reporting is to make the examiner’s
jobs easier when they perform an exam. Even though we are a small bank,
at our last exam I was asked to provide the examiners with income information
for the customers they had selected to review. When I questioned why
we were being asked to provide the information (ahead of their physical
on-site exam), I was told “it will make our jobs easier and reduce
the time we spend reviewing the files during the exam.” It was
very apparent to me that it would take much less time and expense to
look up the information for 15 or 20 loans, as it would ultimately
take to track and report the required financial information on all
small business and farm loans, required for “large” banks.
The decision to increase the threshold for “small” banks
should take into consideration the original purpose of CRA, which is
to ensure that these institutions are meeting the credit needs of the
communities they serve. This can be ascertained during an onsite exam,
without the excessive costs associated with the “large” bank
reporting requirements. Additionally, the affect of raising the limit
to $1 billion will not have a significant impact on the overall industry
assets covered by the regulation as a whole. In addition, the changes
suggested concerning “community development” should allow
small banks the freedom to choose among the community development activities
which best suite the banks’ overall strategy.
Sincerely yours,
Karen A. Schoenbucher
Vice President & Compliance Officer
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