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FDIC Federal Register Citations



Guaranty Bank and Trust Company


From: McClenathan, Sheryl
Sent: Thursday, September 09, 2004 4:32 PM
To: Comments
Subject: RIN 3064-AC50

To Whom it May Concern,

Please accept this correspondence as Guaranty Bank and Trust Company’s comment of support for the proposed revisions to 12 CFR 345, implementing the Community Reinvestment Act (CRA) that would: a) change the definition of "small bank" to raise the asset size threshold to $1 billion regardless of holding company affiliation; b) add a community development activity criterion to the streamlined evaluation method for small banks with assets greater than $250 million and up to $1 billion; and c) expand the definition of "community development" to encompass a broader range of activities in rural areas.

Guaranty Bank is a state-chartered, community bank headquartered in Cedar Rapids, Iowa with assets of approximately $250 million.

Community banks are put at a competitive disadvantage since non-banks and credit unions are not subject to the same CRA requirements. The small bank threshold should be raised from $250 million to $1 billion. As a community banker, I greatly welcome the regulators' effort on raising the threshold. The community banking industry is slowly being crushed under the cumulative weight of regulatory burden, something that must be addressed by Congress and the regulatory agencies before it is too late. This is especially true for CRA, though well intentioned, unnecessarily increases costs for community banks that are passed on to consumers. The data collection and analysis that must be done for the large bank CRA examination almost always requires an institution to purchase additional costly software such CRA Wiz and hire additional employees.

Although small banks do not have to track and report their loans under the current rules, data is available at the time of an exam to provide examiners with the information on a limited segment of the bank’s portfolio, to demonstrate it’s lending activities, as well as it’s ability to make qualified investments and provide for other banking activities and services provided in it’s assessment areas. This information is available because most small banks (and large ones too for that matter) can track their loans internally by some easy coding method, without having to do excessive record keeping, financial information tracking, etc. It is far easier to only have to look up a small amount of additional information for specific loans or customers at the time of an exam, than be subjected to excessive and expensive record keeping, tracking and reporting, year after year after year.

As stated in the Federal Register, when the $250 million small bank definition was adopted in 1995, 20% of insured financial institutions were classified as large with those same institutions holding 86% of the total assets. In 2004, 25% are now classified as large with over 93% of the assets. Because of mergers and acquisitions, only 6% of financial institutions by number are over $1 billion but that same 6% holds 85% of total assets. If the small bank threshold were to be increased to $1 billion, the same percentage of assets being examined under the large bank criteria would stay virtually the same as it was when it was initially implemented in 1995.

Since 1995 when the small institution test was created, the gap in assets between the smallest and largest institutions has grown substantially. As of 6/04, there are 401 institutions with assets greater than $1 billion and they hold 78% of all bank assets. The 813 institutions in our size category - $100 million to $300 million - hold only about 2% of all bank assets. The 985 banks in the $300 million to $1 billion category hold less than 6% of total bank assets. This disparity supports raising the threshold for the large bank examination to make most efficient use of examiner resources without a detrimental impact on the goals of the CRA.

The cost of complying with new and existing regulations is overly burdensome for banks with assets under $1 billion. New regulations under HMDA, the USA Patriot Act, the Gramm-Leach-Bliley Act, Check 21, and the FACT Act are adding enormous costs to community banks' overhead and are drawing critical resources away from serving the credit needs of our customers. Streamlining CRA examination procedures for banks with assets under $1 billion would be consistent with recent changes to the FDIC's safety and soundness examination procedures under the MERIT (Maximum Efficiency, Risk-Focused, Institution Targeted) examination program.

Community banks like Guaranty Bank are already at a competitive disadvantage to credit unions and other financial entities that do not have the same regulatory burden as commercial banks, especially in areas like Community Reinvestment. Enlarging the "small institution" definition will help restore competitive balance in our industry.

I don’t believe that it would be a good idea to add a new community development criterion to the small bank examination for banks between $250 million and $1 billion. In small community banks, bankers many times perform more than one role at an institution. By adding the community development criterion to the small bank examination it adds time consuming accumulation of additional data on the compliance function similar to the large bank CRA examination. Adding the community development criterion stretches already limited resources at community banks and provides no urgently needed relief to institutions sized between $250 million and $1 billion.

As FDIC examiners know, it has proven extremely difficult for small banks, especially those in rural areas, to find appropriate CRA qualified investments in their communities. Many small banks have had to make regional or statewide investments that are extremely unlikely to ever benefit the banks’ own communities. That was certainly not intent of Congress when it enacted CRA.

In addition, the proposal does not explain what the community development criterion is or how it will be tested. If FDIC adds community development criterion, how would it be quantified? The proposal states “banks would be required to engage in activities based on opportunities in the market and the bank’s strategic strengths.” How will the agency test this criterion? What if the bank uses staff and time resources and does not get results? In 1995, the Agencies did away with giving CRA credit based on a bank’s effort rather than the bank’s results. Is the proposal suggesting that the Agency will again review banks based on how hard they try and not just the dollar result of the CD loan, investment or service? This seems like a step backward. Such a system would definitely increase the burden on banks because they will have to document their efforts in addition to documenting their results.

I also support the recommendation to change the definition of “community development” to benefit not just low- and moderate-income residents but also residents of rural areas.

Opponents to changing the current CRA rules argue that data supports that a void exists and banks are not meeting the needs of our rural communities. However, they seem to ignore the fact that no bank is exempt from the CRA, and a "small" bank evaluation exists. In fact, over 98% of CRA examinations for these institutions have resulted in Satisfactory or Outstanding ratings. These ratings cannot be discounted and support the fact that for many rural communities, their bank is the catalyst for community development.

Community activists and some within the regulatory agencies wrongfully assume that the reinvestment that takes place in rural communities is a result of the CRA. To the contrary, community bankers reinvest locally because the long-term viability of their institution and the economic prosperity of the community depends upon it. Ideally, the CRA rating would be a reflection of these efforts.

In conclusion, I believe that the FDIC has proposed a major improvement in the CRA regulations. One that much more closely aligns the regulations with the Community Reinvestment Act intent. I urge the FDIC to adopt its proposal, with the recommendations above.

Sheryl McClenathan
Internal Auditor/Compliance Officer
Guaranty Bank and Trust Company


Last Updated 09/10/2004 regs@fdic.gov

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