The Citizens Bank
Robert E. Feldman
April 6, 2004
Executive Secretary
Federal Deposit Insurance Corporation
Washington, D. C. 20429
Re: Economic Growth and Regulatory Paperwork Reduction Act of 1996
The opinions of banks in regulatory issues should be more involved,
but the reservation of the banks to comment relates to the deaf
ear the comments have been falling upon. I commend your attempts
to correct this problem, so I will bring to you our concerns as
a small community bank (less than $160,000,000.00) in a rural area
of high unemployment.
The community banking industry was the beginning of banking but with
heavy regulatory burden, economic adversity has forced the consumers
to seek the unlicensed predatory lenders. Congress with the assistance
of Federal Regulators, must provide regulatory relief to promote
a healthy financial environment.
Regulation D
Savings and money market accounts are no longer a marketable product
and prevent competition in the financial market. Burdensome recordkeeping
of the number of allowable transactions on these accounts promote
a costly low yielding product for the consumer. The statutory goal
of this regulation was achieved in prior years but the financial
market has changed. Revision of this regulation could provide the
return of deposits that have flowed into other financial markets
that have fewer regulations on interest payment procedures.
Lending Regulations
Regulations within the lending area impose the most unnecessary
requirements and promote confusion of lenders and customers. We cannot
save the forest when every regulation provides for another paper
disclosure and a signature or an initial.
Primary regulators should be instrumental in the organization, wording
and definitions that are contained in regulations from HUD, IRS or
any non-financial agency. Non- financial regulators promote more
confusion with every change of a document or regulatory procedure.
Real Estate lending
changes need to address the elimination or revision of the “Right of Rescission”. This regulation no longer
fulfills current consumer needs. The consumers are much more informed
as to the consequences of a loan secured by their primary residence.
Consumers may have to make multiple trips to the bank for signing
of documents relating to “Right of Rescission”.
Regulators should review the Treasury Constant Yield as related
to HOEPA regulations. The cost of providing these loans to consumers
is in excess of income. Market influence has pushed the Treasury
Constant Yield so low, that greater risk basis has resulted to the
lender in a rising interest rate market. Loans in this market area
are to the low and moderate-income individuals. Providing this service
is very important to our community but we are very concerned about
the risk as to cost, income and rising rates. A revision that would
allow for a higher interest rate, and shorter balloon periods will
provide a marketable product.
Regulations that
are based on the words “evidence of intent” should
not be used in a banking atmosphere. A lender never knows the intent
of a customer; we must deal in contractual terms. Signing of a loan
application and loan agreement should be adequate to satisfy the “intent “ that
a customer agrees to be indebted to the financial institution. Adding
a statement in the loan application and allowing the signature to
server as the customer intent could do clarity of this new requirement.
The requirement of flood insurance by a consumer should be optional
when the structure is partially within the flood zone and does not
promote a substantial loss of collateral (example: loading dock of
new store with 10 foot increased elevation). Flood zone maps within
our community are not accurate due to the changes of land structure,
land improvements and new construction.
Bank Secrecy and USA PATRIOT ACT
These regulations have become a daily time-consuming compliance
issue. We now spend at least 2 hours per day on the average conducting
account reviews and transaction testing. Independent review has increased
the cost of overhead. This regulation has developed into a burden
for small financial institutions.
The filing of business exemptions every two years should be revised
to a one-time filing with supplement filing if business conditions
change.
Bank Secrecy and USA PATRIOT ACT should be interwoven as one regulation
with a unitary purpose that can be effective but not become cost
prohibitive for small banks.
Identification requirements should allow the retaining of picture
identification within a customers loan file to meet regulatory requirements
of the USA PATRIOT ACT.
Lobby Disclosures
Regulators should consider revising the posting of all regulatory
required signs to one central location within the bank premise. The
posting of regulatory signs at every teller and new accounts area
has become overwhelming. The passage of any new regulation will result
in most instances with the bank issuing a new piece of paper and
a new sign. The centralization of signs will allow uniformity of
where the customer can go in any financial institution and find the
regulatory disclosures.
Quarterly Call Reports
The changes to
Call Reports in 27 years have been ongoing and very lengthy. Revisions
now involve
new software programming cost internally
and external Call Report software cost. A revision should be considered
from an economical approach “Does the benefit outweigh the
cost?” and the cost has to be paid by the financial institution.
Federal Reserve Regulation Y
Regulation Y should have an adjustment on a regular interval to
raise the $150 million exemption level of consolidated assets for
a Small Bank Holding Company. Statistics support this as a stale
basis that is over 32 years old without change. This maybe the only
regulation that has stood without change for this period of time.
Regulatory reporting also increases with the $150 million level that
is very burdensome for a small Bank Holding Company with only $160
million in consolidated assets and no non-banking activities.
The enhancement
of debt–to-equity
ratio will also allow the ability of a small Bank Holding Company
to expand and remain a competitive
local community based bank. Updating this regulation will not promote
a greater risk to the small banking community, but only allow for
the economic indexing and realistic definition of a small Bank Holding
Company for the year 2004.
Phillip Howard
Vice President
Compliance Officer
The Citizens Bank
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