BANK OF THE SOUTH
From: Kay Thomas [mailto:kay.thomas@bankofthesouth.net]
Sent: Tuesday, April 06, 2004 3:36 PM
To: Comments
Subject: Comment Letter - CRA
Robert E. Feldman
Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
RE: Proposed Revisions to the Community Reinvestment Act Regulations
12 CFR Part 345
Dear Mr. Feldman:
We are writing to support the federal bank regulatory agencies’ proposal
to amend the definition of a “small institution” to mean an institution
with less than $500 million in assets (instead of the current threshold of
$250 million) under the Community Reinvestment Act (CRA). This proposal is
clearly a major step towards an appropriate implementation of the Community
Reinvestment Act and will greatly reduce regulatory burden on those institutions
newly made eligible for the small institution examination.
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. 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 recordkeeping
burden on banks if the Act passed. Additionally, the Act 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 it 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 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; they exist to serve their communities. When a community
bank must comply with the requirements of the large institution CRA examination,
the costs to and burdens on a community bank increase dramatically. In looking
at our bank, converting to the large institution examination requires that
we incur added expense in the form of staff and their associated expenses to
monitor the regulatory environment, to train employees on the ever-changing
requirements, to monitor for compliance, as well as additional costs for monitoring
tools, etc. This imposition of a dramatically higher regulatory burden drains
both money and personnel away from the basic function of a community bank --
helping to meet the credit needs of the community.
We strongly believe 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 less complex than a large bank; 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. We
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. 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, reduce the compliance burden on more than 500 additional
banks and savings associates.
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. 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 your earnest consideration of this proposal.
Sincerely,
Susan Wilson
VP, CFO
Kay Thomas
Compliance Officer
Bank of the South
P.O. Box 1002
Mt. Juliet, TN 37121-1002
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