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Flagship Bank April 2, 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 on behalf of Flagship Bank & Trust Company, a community
bank headquartered in Worcester, Massachusetts. We support the federal
bank regulatory agencies' (Agencies) proposal to enlarge the number of
banks an savings associations that will be examined under the small
institution Community Reinvestment Act (CRA) examination. The Agencies
propose 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.
Our organization strongly supports 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 that
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 no additional paperwork or record keeping 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. This
test considers the institution's loan-to-deposit ratio; the percentage
of loans in its assessment areas; 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 it 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 changed. When a community bank
must comply with the requirements of the large institution CRA
examination, the costs to and burdens on that community bark increase
dramatically.
It is as true today as it was in 1977 when Congress enacted CRA, and
later when the Act was updated, that a community bank meets the credit
needs of its community if it makes a certain amount of loans relative to
deposits taken. A 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 assess
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 million makes numerically
more community banks eligible. However, in reality raising the asset
threshold to $500 million and eliminating the holding company limitation
would substantially
retain the percentage of industry assets subject to the large retail
institution test. In fact, the
percentage would decline only slightly 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.
Our organization believes 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 consistently producing additional benefits as contemplated by
the Community Reinvestment Act. As our own organization can attest,
today even a $500 million bank often has only a handful of branches. We
recommended 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 covered
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 a $500 million limit), including our bank.
In our view, it is difficult to justify subjecting community banks with
assets of less than $1 billion to the same regulatory standards and
requirements that are applied to multi-billion dollar financial
organizations with whom we compete.
For these reasons, we urge the Agencies to raise the limit to at
least $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 communities. Instead, the changes are
meant only to address the regulatory burden associated with evaluating
institutions under CRA."
In conclusion, we strongly support increasing the asset-size of banks
eligible for the small bank streamlined CRA examination process as a
vitally important step in revising and improving the CRA regulations and
in reducing regulatory burden. We 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.
Thank you for the opportunity to comment on this most important
proposal.
Sincerely,
James C. Garvey
President and CEO
Flagship Bank and Trust Company
120 Front St
Worcester, MA |
