CEI Ventures, Inc.
March 23, 2004
Dear Officials of Federall Bank and Thrift Agencies:
CEI Ventures, Inc., manages two community development venture capital
funds: Coastal Ventures Limited Partnership and Coastal Ventures II,
LLC. These are both. Community Development Financial Institutions and
invest in companies which commit to hire people with low-incomes. The
service area for the venture funds is largely based in Maine, but
extends to northern New England.
The investment test of the CRA and the Bank Enterprise Award program
have been vital to raising the $25 million we have under management and
the 32 companies we have invested in to date.
The proposed changes to the CRA exams will eliminate the investment
and service tests for banks with assets between $250 and $500 million.
This could potentially devastate medium sized bank community group
investments in rural areas such as Maine.
Under the current CRA regulations, large banks with assets of at
least $250 million are rated by performance evaluations that scrutinize
their level of lending, investing, and services to low- and
moderate-income communities (NCRC, 2004). Proposed changes to the CRA
exams will eliminate the investment and service tests for banks with
assets between $250 and $500 million.
Thirteen Maine banks with assets of between $250 and $500 million are
affected. There are currently a total of 40 banks chartered and based in
Maine. Of these, 16 currently have fewer than $250 million in assets and
fall under the current streamlined CRA exam where they are subject to
evaluation of their lending, but not investments or services. There are
24 banks that have assets in excess of $250 million and of these 13 have
assets between $250 and $500 million. Under the proposed changes to the
CRA exam, these 13 banks would be exempt from being held accountable in
areas of investing and services to low and moderate income communities.
| Bank Assets
| No of Banks ME
| No. ME Banks
partner with CEI
| % ME Banks
partner with CEI |
| < $250, million
| 16
| 2
| 12.5% |
| $250 - $500 million
| 13
| 7
| 54% |
| >$500 million
| 11
| 7
| 64%
|
CRA is a major motivation for community banks to invest in CEI's
venture funds. An analysis of CEI's involvement with these banks
demonstrates that currently CEI's venture funds alone work with 14
banks that are subject to the CRA investment test and only two or 12.5%
that are subject to only the lending test. Of these two, one is Fleet Bank that is part of a larger corporation that is subject to CRA
investment tests elsewhere. A break down of the banks currently subject
to investment tests under CRA shows that of those with assets between
$250 and $500 million, 7 of 13 banks or 54%, work and invest with CEI
venture funds. Similarly in the group with assets over $500 million, 7
of 11 banks work and invest with CEI, or 64% of that group.
CEI venture fund managers have noted that as banks assets have grown,
and a bank has moved into the group where they will be subject to
investment tests under CRA, banks have looked to invest in CEI's venture
funds where previously they had not been interested1. With seven of the
banks that have made substantial investments in CEI Venture funds
removed from the investment test under the proposed changes to the CRA,
CEI is very concerned that these seven banks will no longer have the
motivation to make continued investments in our venture funds and other
financing activities, since the additional benefits accruing from such
activity under current CRA regulations will no longer apply.
Furthermore, with the proposed reduction in the Bank Enterprise
Awards, which offer an important financial incentive to smaller banks to
invest in Community Development Financial Institutions, the CRA becomes
even more important in ensuring small to medium-sized banks are providing important
capital and services for low and moderate income
communities.
Thank you for your interest in our comments.
Sincerely,
Nathaniel V Henshaw
President
CEI Ventures. Inc.
2 Portland Fish Pier, Suite 201
Portland, ME 04101
I We are pretty sure that the reason for this is the introduction of
the investment test under the CRA exam in the $250 million + assets
group and not the growth in bank assets. Indeed bank assets, at the top
of the <$250 million group and at the bottom of the >$250 group do not
differ substantially to suggest asset growth was important in deciding
to invest in CEI venture funds.
