NORTH DAKOTA BANKERS ASSOCIATION
March 30, 2004
Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Re: 12 CFR Part 345
Dear Mr. Feldman,
The North Dakota
Bankers Association (NDBA) appreciates this opportunity to comment
on the
proposed amendments to the CRA regulations. NDBA
is a financial institution trade association. Its 98 members are
commercial banks and federal savings associations which offer a full
range of banking services to North Dakota’s citizens through
offices and branch facilities throughout the state. NDBA member financial
institutions have always had serious regard for their obligations
to serve local community credit needs. This was true before the Community
Reinvestment Act was adopted in 1977 and has been demonstrated many
times by the CRA ratings which North Dakota institutions receive.
SMALL INSTITUTION EXEMPTION
Given the record of our member institutions and the industry in general,
NDBA heartily endorses the federal bank regulatory agencies’ proposal
to increase the asset level at which an institution qualifies as
a “small institution” and to eliminate affiliation
with a holding company as a consideration for eligibility for the
small institution exemption. The adoption of the small institution
exemption from service and investment tests in 1995 substantially
improved CRA because it allowed eligible institutions and examiners
to refocus the CRA process on the bank’s record of satisfying
a community’s credit needs, rather than devoting ever more
resources to documentation, compliance with detailed regulations,
or investments, than loans. As a result of the change, examiners
were also allowed to evaluate CRA performance based upon a bank’s
record of lending in the community, instead of its skill with documentation
and investment. This was an enormous improvement in process because,
for small institutions anyway, regulation was better conformed
to the purpose of the Community Reinvestment Act itself.
It appears the
agencies’ experience
with the small institution category has been a resounding success
for banks, the public and
examiners. NDBA supports the current proposal because its adoption
will reduce regulatory burden for banks which are on the borderlines
of eligibility for small institution status. However, more could
be achieved by increasing the small institution threshold to $1 billion,
irrespective of holding company affiliation.
The 1995 adoption
of the small institution exemption was a victory of substance over
form
and it, too, brought complaints that banks
would use the exemption to shirk their CRA obligations. But the naysayers
have been proved wrong. What has happened instead is that institutions
that are eligible for the exemption have concentrated their limited
resources on lending, rather than documentation. That result was
positive for everyone. However, the proposed increase of the small
institution exemption threshold to $500 million only reflects inflation
since 1995 and recognizes that banks which have grown larger by that
inflation are, nonetheless, community banks. Such recognition is
certainly appropriate, but it does not build on the successful experience
of the 1995 “deregulation” as a $1 billion threshold
would do. In today’s world, $1 billion banks are non-complex,
community banks and the effect of deregulating their CRA compliance
will enhance local lending just as it has done for other small institutions
since 1995.
A $1 billion threshold will mean 500 additional banks (and their
customers) would realize the benefits of a significantly reduced
regulatory burden. Yet, the reduction in assets held by banks classified
as large institutions (and remaining subject to service and investment
tests) would be only four percent. In the aggregate, the resources
which could be saved by reducing the process (documentation) and
devoted to substance (community lending) would be material.
If the agencies
are unwilling to extend small institution status to institutions
up to $1 billion,
carte blanche, the regulations
can approach the matter as one of presumptive qualification as has
been done to reduce regulatory burden in other areas. The presumption
would be that institutions up to $1 billion are presumptively qualified
for the exemption unless their primary federal regulator notifies
them otherwise. The action by a federal regulator could be founded
on an institution’s past, unresolved unsatisfactory CRA ratings
or on other negative factors such as an institution’s record
of engaging in a pattern and practice of abusive lending or deceptive
practices as defined and established under other applicable law and
regulations. (Of course, such institutions would have to be able
to make their qualification for the exemption.) This approach of
presumptive qualification for the exemption effectively protect public
interests while releasing many individual institutions from regulatory
burden which is not warranted by that institution’s record
for meeting its CRA obligations.
ABUSIVE LENDING PRACTICES
The agencies’ desire to give banks and savings institutions
examples of practices which will be deemed to be abusive and negatively
affect an institution’s CRA ratings should be encouraged. However,
banks and savings associations should not be made the scapegoats
for the practices of other, less regulated lenders. So far as NDBA
is aware, North Dakota banks and savings associations do not engage
in lending practices which the agencies designate as or consider
being abusive or predatory. While we agree institutions are served
by knowing “up front” that designated practices will
negatively impact CRA ratings, it is even more important that the
agencies recognize the connection between undesirable contractions
of credit and regulations that are overly broad. Banks and savings
institutions pay sincere attention to regulations and care must be
taken that responsible banks and savings association are not discouraged
from offering products to meet specialized credit needs of low and
moderate income customers and communities.
Sincerely Yours,
NORTH DAKOTA BANKERS ASSOCIATION
James Schlosser
Executive Vice President
Marilyn Foss
General Counsel
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