Federal Deposit
Insurance Corporation

October 20, 2004

Mr. Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429

Re: RIN Number 3064-AC50: FDIC Proposed Increase in the Threshold for the
Small Bank CRA Streamlined Examination

Dear Sir:

I am President of Country Club Bank, chartered in Prairie Village, Kansas. I am writing to strongly support the FDIC’s proposal to raise the threshold for the streamlined small bank CRA examinations to $1 billion without regard to the size of the bank’s holding company. Our bank is $425 million in total assets and will soon receive its first CRA examination under the “large bank” exam threshold. Accordingly, we will be examined and evaluated in the same manner as Citigroup and Bank of America, both of which have assets in excess of $1 trillion. Please note that this “large bank” threshold would be the threshold level for banks as small as 1/1000, or .1% the size of those two financial institutions. Accordingly, one could certainly argue that such a threshold should be much higher. However, just raising the threshold to $1 billion would greatly relieve the regulatory burden imposed on many small banks such as our own, which, under the current regulation, are required to meet the same standards imposed on the nation’s largest $1 trillion banks. I understand that this is not an exemption from CRA and that my bank would still have to help meet the credit needs of our community and be evaluated by my regulator. However, I believe that this would lower our current regulatory burden by countless hours and dollars without sacrificing any benefits we currently provide our community. We would estimate, that, at a minimum, such regulatory burden would reduce our costs by $35,000.

I applaud and whole-heartedly concur with OTS Director James Gilleram’s decision to move the “large bank” threshold to $1 billion. In addition, I would suggest that this level be adjusted for inflation every five years so that we, as an industry, do not have to continually address this topic in the future. Another consideration for threshold levels would be for the threshold to be set so that it applies to the largest 50% of banks in America so that the term “large” would mean just that---large in comparison to all other financial institutions in the United States. In any case, I would urge all banking regulators, including the Office of the Comptroller of the Currency and the Federal Reserve Bank, to follow suit so as not to have different standards depending upon the financial institution’s charter. As a banker who pays BIF premiums and FICO bond costs to support thrift-chartered institutions, I resent and reject the notion that my thrift competitors, whose insurance fund we have subsidized, should compete with our nationally-chartered bank while enjoying substantially less regulatory cost/burden.

I also support the addition of a community development criterion to the small bank examination for larger community banks. It appears to be a significant improvement over the investment test. However, I urge the FDIC to adopt its original $500 million threshold for small banks without a CD criterion and only apply the new CD criterion to community banks greater than $500 million up to $1 billion. Banks under $500 million now hold about the same percent of overall industry assets as community banks under $250 million did a decade ago when the revised CRA regulations were adopted, so this adjustment in the CRA threshold is appropriate. 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 the intent of Congress when it enacted CRA.

An additional reason to support the FDIC’s Community Development (CD) criterion is that it significantly reduces the current regulation’s “cliff effect.” Today, when a small bank, such as out own, grows over $250 million, it must completely reorganize its CRA program and begin a massive new reporting, monitoring and investment program. If the FDIC adopts its proposal, a state nonmember bank would move from the small bank examination to an expanded but still streamlined small bank examination, with the flexibility to mix Community Development loans, services and investments to meet the new CD criterion. This would be far more appropriate to the size of the bank, and far better than subjecting the community bank to the same large bank examination that applies to $1 trillion banks. This more graduated transition to the large bank examination is a significant improvement over the current regulation.

I strongly oppose making the CD criterion a separate test from the bank’s overall CRA evaluation. For a community bank, CD lending is not significantly different from the provision of credit to the entire community. The current small bank test considers the institution’s overall lending in its community. The addition of a category of CD lending (and services to aid lending and investments as a substitute for lending) fits well within the concept of serving the whole community. A separate test would create an additional CD obligation and regulatory burden that would erode the benefit of the streamlined exam.

Too, I strongly support the FDIC’s proposal to change the definition of “community development” from only focusing on low- and moderate-income area residents to including rural residents. I think that this change in the definition will go a long way toward eliminating the current distortions in the regulation.

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 itself, and I urge the FDIC to adopt its proposal, with the recommendations above. I will be happy to discuss these issues further with you, if that would be helpful.

Sincerely,
Paul J. Thompson
President

Cc: The Honorable Julie Williams
Comptroller of the Currency
Independence Square, 250 E. Street, S.W.
Washington, DC 20219-0001

The Honorable Alan Greenspan
Chairman
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551