From: Roberson, Robert E.
Sent: Monday, August 23, 2004 8:27 PM
To: Comments
Subject: RIN #3064-AC50
The conclusion
of the proposal states: “…the proposal
is intended to improve the effectiveness of CRA evaluations by permitting
banks to focus on community development activities based on the opportunities
in the market and the needs of the community, including low- and
moderate-income areas; address particular concerns relating to investments
and services provided to rural communities; and update the regulation
to take account of economic changes in the industry.”
Currently “large” banks have to meet the investment
and services tests. Banks that achieve good ratings in these areas
already focus on community development activities in their markets
and the needs of their communities. The proposal will add a “mandatory
community development performance criterion” for banks between
$250 million and $1 billion in assets. This criterion is already
in place for banks of this size. The effective change in the proprosal
is not adding a community development criterion, it is dropping the
data collection requirement for small business and small farm loans.
Dropping the data collection requirement will be counter to the stated
intention of improving the effectiveness of CRA evaluations. The
only effective tool for evaluating a bank’s performance in
lending to small businesses and small farms is the comparison to
other lenders through the aggregate data collection. Reducing the
number of banks that report this data will reduce the effectiveness
of all CRA evaluations including those from other agencies.
Changing the
definition of “community development” to
individuals who reside in rural areas will, in many cases, broaden
the definition to the point that many middle- and upper-income individuals
will be included. If this happens, then banks will have less incentive
to lend to low- and moderate-income borrowers since the $500,000
home loan to a doctor living in a ‘rural’ area will be
easier to make and service than the 20 $25,000 home loans to low-
or moderate-income borrowers that typically have some credit weaknesses.
The CRA evaluation
guidelines state that if there are no qualified community investment
opportunities
available for a bank in its assessment
area, then that bank is automatically rated “Low Satisfactory” in
that test. “Large” banks in rural areas may meet this
criterion. There is no criterion for banks to maintain additional
staff and expend resources in order to make qualified community investments.
It is true that “large” banks as currently defined may
not have the staff and resources to compete for all types of qualified
community investments; however, it is not true that “large” banks
cannot find qualified community investments in sufficient quantities
to qualify for at least a “Low Satisfactory” unless they
do not look around.
The argument that the regulation needs to be updated based on the
economic changes in the industry does not really hold water. Inflation
since 1995 has not caused the number of banks supervised by FDIC
with assets of $250 million or more to increase from 10.6 percent
to 20.9 percent. The bursting of the stock market bubble saw a large
movement of funds from mutual funds and stocks back to banks. Historically
low rates have caused a boom in the housing market and many banks
have used these available funds to increase their loan portfolios
rather than invest in bonds with lower yields. Bank consolidation
since 1995 also increased the size of banks.
Robert E. Roberson
13028 N. Circle 8 Drive
Okawville, Illinois 62271
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