NEW YORK BANKERS ASSOCIATION
April 1, 2004
Public Information Room
Office of the Comptroller of the Currency
250 E Street, SW
Mail Stop 1-5
Washington, DC 20219
Attention: Docket 04-06
Jennifer J. Johnson
Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
Docket No. R-1181
Leneta G. Gregorie
Legal Division
Room MB-3082
Federal Deposit Insurance Corporation
550 Seventeenth Street, NW
Washington, DC 20429
Attention: Comments
Information Collection Comments
Chief Counsel’s Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
Dear Sir or Madam:
In response to the notice of proposed rulemaking published in the
Federal Register on February 6, 2004, the New York Bankers Association
is submitting these comments on the regulations implementing the
Community Reinvestment Act (CRA). Our Association strongly supports an
increase in the size of institutions eligible for the streamlined CRA
examination process. We do not object to using evidence that
institutions engaged in certain discriminatory, illegal or abusive
credit practices to adversely affect the institution’s CRA rating,
although we urge the agencies to adopt appropriate and specific
guidelines to advise institutions what conduct will result in an adverse
rating impact. We also recommend providing CRA credit for certain types
of real estate-related loans that we understand are unique to the New
York market. Our Association is comprised of the community, regional and
money center banks of New York State with aggregate assets in excess of
$1 trillion and more than 280,000 New York employees.
This joint proposal by the Office of the Comptroller of the Currency,
Board of Governors of the Federal Reserve System, Federal Deposit
Insurance Corporation and Office of Thrift Supervision (hereinafter, the
“federal regulatory agencies” or “the agencies”) would increase from
$250 million to $500 million in assets the size of institutions defined
as “small” and therefore eligible for the agencies’ small institution
evaluation standards, the streamlined CRA examination process first
adopted in 1995. The proposal would also ignore holding company and
affiliate assets in determining whether an institution was under $500
million in assets. In addition, the proposal would provide that evidence
that an institution or any of its affiliates had engaged in certain
discriminatory, illegal or abusive credit practices would adversely
affect the institution’s CRA performance evaluation.
I. Streamlined Examination Eligibility
In comments filed with the agencies in 2001, our Association urged
that the $250 million asset limit on streamlined examinations be
increased. We noted:
Whereas only a few years ago, banks with assets below $250 million
accounted for more than 90% of all institutions, today they account for
a far smaller percentage. We would therefore recommend, first, that the
agencies delete the limitation of the small bank definition to banks
that are in holding companies with less than $1 billion in assets, and,
second, that the asset definition for small banks be increased to $1
billion. The limitations in the small institution examination to those
not part of a holding company of more than $1 billion is not consistent
with banking reality. A community bank does not cease to be a community
bank by becoming part of a larger holding company. Moreover, we are
unaware of any institutions that choose their form of corporate
organization (whether a branch or a separate charter) in order to
minimize their CRA compliance burden. In addition, the $250 million
definition for small institution certainly is inapplicable to a State
like New York, where institutions many times larger are competing
against some of the largest depositories in the nation.
We believe that these comments remain valid today. We are pleased
that the agencies have chosen to propose a substantial increase in the
size limitation for institutions subject to the streamlined examination
process. However, the agencies’ proposal would provide insufficient
relief in a State like New York, the size of whose institutions on
average far exceed the national norm. The average size depository
institution insured by the FDIC in New York at the end of 2003 was well
over $8 billion, while the average nationwide was barely a tenth that
size at $988 million. Moreover, the median size bank in New York, at
almost $300 million, far exceeds the median size bank nationwide. By
increasing the asset definition for banks subject to the streamlined
examination procedure to $1 billion, the agencies would continue to
subject $1.697 trillion (98%) of the $1.733 trillion in assets in
insured institutions in New York to a full-scope CRA examination. This
percentage would still greatly exceed the national percentage of under
90% of assets covered by the full-scope CRA examination requirement if
the agencies’ proposal is adopted. Increasing the asset size from $250
million to $500 million will release an additional 44 New York
institutions to be examined under the streamlined procedure. Moving from
$500 million to $1 billion would add another 26 institutions – almost
50% more - to the number that would not be required to undergo the full
CRA examination.
As the agencies are aware, the difference in cost, time and burden
between a full-scope CRA exam and the streamlined examination to which
smaller institutions are now subject is not trivial. Anecdotal evidence
cited in the agencies’ proposal indicates that the compliance cost
differential for comparably sized institutions may exceed 300%. One of
the major purposes of the 1995 revisions in the agencies’ CRA
regulations was to minimize the regulatory burden of compliance.
Increasing the size of institutions eligible for the streamlined
examination from $250 million to $1 billion would, we believe, better
serve that objective, with very little impact on the assets that would
continue to be subject to the full-scope examination.
Our Association also strongly supports the elimination of the holding
company limitation on bank eligibility for the streamlined examination
process. The current restriction that precludes banks of whatever size
from participating in the streamlined examination if their holding
company exceeds $1 billion in assets does not accurately reflect the
costs of compliance. New York banks experience comparable compliance
costs at the bank level irrespective of the size of their holding
companies. In addition, small banks affiliated with holding companies in
excess of $1 billion in assets remain independent typically for
geographic, corporate governance or historic reasons having little if
anything to do with maintaining a streamlined examination procedure. We
therefore agree with the agencies’ proposal that the holding company
limitation on the streamlined examination procedure be abolished.
II. Adverse Affect of Certain Credit Practices
The agencies also requested comments on making explicit that evidence
of certain discriminatory, illegal or abusive credit practices may
adversely affect an institution’s CRA rating. Currently, the regulation
provides that “evidence of discriminatory or other illegal credit
practices adversely affects” an agency’s evaluation of an institution’s
CRA performance. The proposal would expand this provision to include
specified predatory lending and other abusive credit practices affecting
consumer and housing (but not business) loans. Some of these practices,
such as equity stripping, are central characteristics of predatory
lending. Our Association strongly opposes predatory lending and does not
object in principle to a provision that evidence of such credit
practices may adversely affect an institution’s CRA rating. However, we
believe that it is critically important for the agencies to provide
specific guidance with regard to the practices that could have an
adverse affect and the type of adverse affect that different practices
could engender. Without such guidelines, institutions will be unable to
determine in all cases whether programs designed to serve special niche
credit markets with unusual features could draw adverse CRA comment.
III. Public Files
Our Association also suggests two additional amendments to the
current CRA regulations. First, the agencies indicate that they examined
but chose to propose no changes in the requirements governing material
that must be placed in public file. However, several of our member banks
have indicated that the material in the public file at each of their
branches adds materially to their regulatory burden. We would therefore
suggest that the agencies reconsider whether each branch needs to
maintain a separate public file. So long as a complete public file is
maintained or can be made available at a location that is geographically
convenient to any person requesting access to the file, branches should
not be required to maintain separate public files.
IV. CRA Credit for Modifications
Second, New York’s mortgage recording tax – and the way it is
administered – has given rise to a type of lending that is, we believe,
unique to our State. In New York, the mortgage recording tax is assessed
on the entire amount financed. There are no exceptions for refinancings.
As a result, banks have developed a type of loan called a “modification”
to allow an existing mortgage loan to be refinanced with the mortgage
recording tax charged only on the amount by which the principal balance
of the new loan exceeds that of the old.
Because “modifications” are considered refinancings for the purpose
of CRA, there is no CRA credit available to New York banks for these
types of loans, even though they are specifically designed to add value
for the home-owner. The economic effect of the loan is to extend
additional credit to the borrower. When the loan is secured by property
in a low- to moderate-income area, our Association would respectfully
request that the agencies amend their regulations to provide CRA credit
for “modifications,” at least to the extent that the value of the
principal subject to the modification exceeds the original principal
amount of the loan.
The New York Bankers Association appreciates the opportunity the
agencies have provided to comment on these amendments to the regulations
implementing the Community Reinvestment Act. We urge the agencies to act
quickly to increase the size of banks subject to the streamlined CRA
examination, to eliminate the bank holding company limitation from
consideration with regard to eligibility for the streamlined exam, to
provide guidelines for the type of conduct that could result in adverse
affects on a bank’s CRA rating, to minimize the burden of the public CRA
files and to include modifications in the types of loans eligible for
CRA credit.
Sincerely,
Michael P. Smith
New York Bankers Association
