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Community National Bank


From: Joe Vich
Sent: Monday, March 15, 2004 4:59 PM
To: Comments
Subject: 12 CFR Part 345

Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Re: 12 CFR Part 345

RE: Proposed Revisions to the Community Reinvestment Act Regulations

Dear Mr. Feldman:

As the President of a nearly $250 million bank, 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) examination. The Agencies propose to increase the asset threshold from $250 million to $500 million and to eliminate any consideration of whether the small institution is owned by a holding company. This proposal is clearly a major step towards an appropriate implementation of the Community Reinvestment Act and should greatly reduce regulatory burden on community institutions like ours that would otherwise need to comply with the large bank examination requirements.

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. The most significant improvement in the new regulations was the addition of the small institution CRA examination, which actually did what the Act required: had examiners, during their examination of the bank, look at the bank’s loans and assess whether the bank was helping to meet the credit needs of the bank’s entire community. 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 record-keeping burden on banks if the Act passed. And it 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 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.

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 like ours has not changed. When a community bank must comply with the requirements of the large institution CRA examination, the costs and burdens on us increase dramatically. In looking at my bank, a bank that is approaching $250 million in total assets, converting to the large institution examination requires, among other things, that we devote additional staff time to documenting services and investments, which we currently do not do, and begin to geocode all of our loans that might have CRA value. This imposes a dramatically higher regulatory burden that drains both money and personnel away from helping to meet the credit needs of the institution’s community. It is even more of a burden in our market, as we compete against a billion dollar credit union, the largest in the State of Iowa, who is not subject to any CRA requirements.
A community bank like ours is not very complex; we take deposits and makes loans in the communities we serve. Our business activities are focused on small, defined geographic areas where our bank is known. The small institution examination accurately captures the information necessary for examiners to assess whether our bank is helping to meet the credit needs of our community, and nothing more is required to satisfy the Act.

In today’s banking market, even a $500 million bank often has only a handful of branches. I recommend raising the asset threshold for the small institution examination 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, which the small institution examination does, would be entirely consistent with the purpose of the Community Reinvestment Act, which is to ensure that the Agencies evaluate how banks help to meet the credit needs of the communities they serve.

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,
Josef M. Vich, C.P.A.
President & C.E.O.
Community National Bank
P.O. Box 1288
Waterloo, Iowa 50704


Last Updated 03/22/2004 regs@fdic.gov

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