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PEOPLES STATE BANK
Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Re: 12 CFR Part 345
comments@fdic.gov
RE: Proposed Revisions to the Community Reinvestment Act Regulations
Dear Mr. Feldman:
I am writing to support the federal bank regulatory agencies'
(Agencies) proposal to enlarge the number of banks and saving
associations that will be examined under the small institution Community
Reinvestment Act (CRA) compliance examination. The Agencies proposal is
to increase the asset threshold to $500 million (from $250 million) and
to eliminate consideration of whether the institution is owned by a
holding company. This proposal is clearly a major step toward
appropriate implementation of the Community Reinvestment Act and should
greatly reduce regulatory burden on those newly eligible institutions. I
strongly support both aspects of this proposal.
When CRA regulations were rewritten in 1995, the banking industry
recommended community banks of less than $500 million should be eligible
for a less burdensome examination. This change actually achieved what
the original Act intended: it asked examiners to focus on the bank’s
loans and assess whether it was meeting the credit needs of its entire
community. It imposed no investment requirement and added no data
reporting requirements, fulfilling the promise of the Act’s sponsor,
Senator William Proxmire, that there would be no additional paperwork or
record keeping required. It also created a simple 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 areas. Our bank’s CRA
ratings have been Outstanding and we welcome the opportunity, through
examinations, to document the commitment we make to our community. With
total assets approaching $245 million, we are on the verge of losing our
small bank status and need to anticipate the large bank CRA exam. In
reading the requirements set forth in 12 CFR § 345.42 we will need to
make a significant investment in technology upgrades, additional
paperwork, and even manpower and this added expense will do nothing to
enhance our already strong commitment to meeting the credit needs of our
bank’s entire community.
Since 1995, 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. However,
the nature of community banks has not changed. When a community bank
must comply with the requirements of the large institution CRA
examination, its costs and burdens increase dramatically. In looking at
my bank, converting to the large institution examination will require,
among other things, that we devote additional staff time to documenting
services and investments and begin to geocode all of our loans that
might have CRA value. This imposes a dramatically higher regulatory
burden that will drain both money and personnel away from helping meet
the credit needs of the communities in which we do business.
It is as true today as it was in 1995, (and in 1977 when Congress
enacted CRA), that a community bank meets the credit needs of its
community if it makes a certain amount of loans relative to deposits
taken. Its business activities are usually focused on small,
well-defined geographic areas where the bank is known. The small
institution CRA examination accurately captures the information
necessary for examiners to assess whether a bank is meeting the credit
needs of its community - nothing more should be required to satisfy the
Act.
Even though raising the small institution CRA examination threshold
to $500 makes more community banks eligible, there would only be a
negligible change to the percentage of industry assets subject to the
large retail institution test. It would only decline from a little more
than 90% to a little less than 90%. That slight decline would more
closely align the current distribution of assets between small and large
banks with the distribution anticipated when the Agencies adopted the
original definition of “small institution.” Thus, the Agencies’ proposal
to revise the CRA regulation is 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.
I really believe that the Agencies need to provide even greater
relief to community banks than just preserving the status quo. Even
though the small institution test was the most significant improvement
of the 1995 CRA revision, it was wrong to limit its application to banks
below $250 million in assets, thereby depriving many community banks of
any regulatory relief. A bank with more than $250 million in assets
faces significantly increased regulatory burdens without producing
additional benefits, as contemplated by CRA. In today’s market, even a
$500 million bank often has only a handful of branches. I recommend
raising the asset threshold for the small institution exam 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 would be
entirely consistent with the purposes of the Community Reinvestment Act,
which is to ensure 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 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, increasing 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 be
substantial and reduce the compliance burden on more than 500 additional
banks and savings associations (compared to a $500 million limit).
Accordingly, I 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, I 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. I 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.
Sincerely,
Karin L. Yeomans
Office Manager
Peoples State Bank
301 E. Blackhawk Ave.
Prairie du Chien, WI
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