SOUTHWEST BANK
July 30, 2004
Robert E. Feldman, Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Public Information Room
Office of the Comptroller of the Currency
250 E Street, SW
Mailstop 1-5
Washington, DC 20219
Ms. Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
Regulation Comments
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
Re: Withdrawal of Proposed Amendments to Community Reinvestment Act
Dear
Sir or Madam:
As a community banker, I am extremely concerned that the community
banking industry is slowing being crushed under the cumulative weight of
regulatory burden. This must be addressed by Congress and the regulatory
agencies before it is too late. In recent month there has been much
conversation about raising the small bank threshold for CRA purposes to
$500 million, and some bankers and agencies had even mentioned raising
it to $1 billion. Most community bankers whole heartedly approved of the
increase because of the extremely costly burden the reporting
requirements place on small community banks. And now, the Federal
Reserve Bank is proposing to withdraw the recommendation to amend CRA.
This is a grave mistake!
In the Federal Reserve Bank of Dallas's Notice 04-47 it states in part
that ". . . the proposal's cost in the form of a potential reduction in
community development capital in a significant number of rural
communities is also uncertain, but potentially large in at least some
communities." Okay, instead of withdrawing the proposed threshold
increase, let's do raise it as proposed, 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!
Banks (both large and small) have been examined under the current CRA
regulations since July 1995, so by now some seven years later, the
regulators should have ample information about the performance of all
banks under the current regulations. How possibly could the threshold
increase so negatively impact the "potential reduction in community development capital" simply due to
the proposed change? So I will ask you, why can't the regulation be
changed to cover the increased threshold while not removing the
availability of the community development funds?
To quote from the May 12, 2004, statement from John M. Reich, Vice
Chairman of the FDIC:
"Community banks play a vital role in the economic wellbeing of
countless individuals, neighborhoods, businesses and organizations
throughout our country, often serving as the lifeblood of their
communities."
"Data from June 2003 show that the overwhelming share of commercial
loans at small community banks were made to small businesses. In
addition, the data indicate that commercial banks with assets between
$100 million and $1 billion account for a large share of the small
business and farm loans."
So, if small banks don't have to track and report these loans under the
current rules, how is this information available? It's available because
most small (and large) banks can track these loans internally by some
easy coding method, without having to do excessive record keeping,
financial information tracking, etc. And if this is the case, why
subject the small banks to the excessive reporting and tracking under
the large bank definition, when we can provide you with small business
and farm loan information at the time you do an exam? It is far easier
to code the 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 record keeping,
tracking and reporting, year after year after year when we are only
examined once every 3 or 4 years!
Further along in his speech, Mr., Reich discussed that "While banks
under $100 million had the highest yield on earning assets, they also
had the lowest non-interest income, and the highest non-interest expense
to asset ratio. These numbers make it clear that community banks, while
healthy in terms of their supervisory ratings, are operating at a lower
level of profitability than the largest banks in the country. At least
part of this disparity in earnings stems from the disproportionate
impact that regulations and other fixed non-interest costs have on
community banks."
A chart of these findings was present at his speech, which I don't have
access to. However, if the vice chairman of the FDIC has access to
numbers that show these findings, I find it interesting that the Federal
Reserve's Notice states: "While community banks strongly favor raising
the threshold, it is uncertain that the cost savings to the average
community bank of being "small" rather than "large" under the proposal
would be significant."
And finally: "In some cases, the cost of complying with that burden (the
never ending avalanche of regulations) is pushing some smaller banks out
of the market." One bank CEO said that his directors are concerned over
their slipping return on assets and are beginning to ask how much longer
the bank can afford to remain independent without giving consideration
to shareholder value through a merger or sale!
Conclusion
The reporting and tracking requirements of becoming a "large" bank
versus a "small" bank are very much out of proportion in relation to the
benefit to the "small" banks. The major 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 some income information for the customers
they had selected to review. When I questioned the fact that we really
didn't have to give them that information (ahead of their physical
on-site exam), I was told "it would make their jobs easier and reduce
the time spent looking at the files during the exam." It was very
apparent to me that I could look up the records on 15 or 20 loans quite
easily in relation to the time and cost it will ultimately take to track
and report the required financial information on all small business and
farm loans, which will be required if we are classified as a "large"
bank.
The decision to increase the threshold for "small" banks should be
made by a unanimous decision of all the agencies, and if they cannot
reach a decision, then the decision should be taken out of their hands
and be done by another means, including legislative action if necessary.
Thank you in advance for letting me share my thoughts with you on this
topic.
Sincerely yours,
Karen A. Schoenbucher
Vice President & Compliance Officer
Southwest Bank
CC: Rob Rowe, ICBA
Karen Neeley, IBAT
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