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, D.C.

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

Dear Sir:

I am the compliance officer of Southwest National Bank, located in Wichita, Kansas, a town of about 400,000 residents. My bank is a $284 million bank today by virtue of a recent merger with a sister bank once owned by the same person. Prior to the merger, both sister banks were well below the large bank asset size threshold. If the proposal below does not pass, it is conceivable that I can spend considerable amount of my time only on CRA, particularly community development issues, at the expense of the rest of the bank’s compliance program. As a result, I am writing to strongly support the FDIC’s proposal to raise the threshold for the streamlined small bank CRA examination to $1 billion without regard to the size of the bank’s holding company. This would greatly relieve the regulatory burden imposed on many small banks such as my own under the current regulation, which are required to meet the 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 its entire community and be evaluated by my regulator. However, I believe that this would lower my current regulatory burden by an estimated 1,040 man hours annually, given our new-found asset size. There are so many banks from nearby communities about the same size as my bank that established branch offices in the Wichita market seeking lending opportunities that cannot meet the current regulatory burden for large bank CRA simply because they do not have the manpower to do so. Though by their current asset size they are considered large banks, these banks by their operations and manpower remain small community banks. They cannot afford to remain in declining communities if they are to survive. Reducing the CRA regulatory burden as proposed by the FDIC makes economic sense for us, particularly these banks moving into this market seeking new lending opportunities. Because of competition, most banks the same size as mine cannot afford to add personnel to the compliance department to take on the responsibilities of the large bank.

I also support 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 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 CD criterion is that it significantly reduces the current regulation’s “cliff effect.” Today, when a small bank goes over $250 million, it must completely reorganize its CRA program and begin a massive new reporting, monitoring, and investment program. If 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, service, 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 significant different from the provision of credit to the entire community. The current small bank test considers the institution’s overall lending in its community. This 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.

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,
Larry Aginar
Compliance Officer
Southwest National Bank
400 East Douglas Avenue, Wichita, KS 67206
(316) 291-1300

CC: Comptroller of the Currency