Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
re: 12 CFR Part 345
comments@fdic.gov
RE: Proposed Revisions to the Community Reinvestment Act Regulations
Dear Mr. Feldman:
I am writing on behalf of my community bank to support the federal
bank regulatory agencies’ (Agencies) proposal to enlarge the number of
bank and savings associations that will be examined under the small
institution Community Reinvestment Act (CRA) examination. I am also
writing; however, to express our disagreement over elements of the
second revision within the CRA regulation as it relates to
discrimination affecting a bank’s CRA rating. Finally, I am writing to
encourage the agencies to make the Investment Test voluntary for banks
of less than $1 billion.
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 a
positive step towards an appropriate implementation of the Community
Reinvestment Act and should greatly reduce regulatory burden on those
institutions eligible for the small bank examination; I strongly support
both of these recommendations.
The regulatory burden on small banks has only grown larger in the
past few years, including massive new reporting requirements under HMDA,
the USA Patriot Act and the privacy provisions of the Gramm-Leach-Bliley
Act. The nature of community banks has not changed and when a community
bank must comply with the requirements of the large bank CRA
examination, the costs and burdens on the community bank increase
dramatically. In looking at our bank, converting to the large bank
examination required hiring one full time employee who is responsible
for the Bank’s CRA and Compliance programs. Our loan processing staff
was increased by half a person to ensure that all CRA data reporting is
done correctly. This imposition of a dramatically higher regulatory
burden drains both money and personnel away from helping to meet the
credit needs of the bank’s community.
It is as true today as it was in 1977 when Congress enacted CRA, that
a community bank meets the credit needs of its community if it makes a
certain amount of loans relative to deposits taken. A community bank is
typically non-complex; it takes deposits and makes loans. Its business
activities are usually focused on small, defined geographic areas where
the bank is known in the community. A community bank will not survive in
today’s competitive environment if it does not lend to its community.
The small bank examination accurately captures the information necessary
for examiners to assess whether a community bank is helping to meet the
credit needs of its community.
As the Agencies state in their proposal, raising the small bank CRA
examination threshold to $500 million makes numerically more community
banks eligible. However, in reality raising the asset threshold to $500
million and eliminating the holding company limitation would retain the
percentage of industry assets subject to the large retail institution
test. It would decline only slightly, from a little more than 90% to a
little less than 90%. Thus, the Agencies, in revising the CRA
regulation, are really just preserving the status quo of the regulation,
which has been altered by a drastic decline in the number of banks,
inflation and an enormous increase in the size of large banks. The
Agencies need to provide greater relief to community banks than just
preserve the status quo of this regulation.
While the small bank test was the most significant improvement of CRA,
as revised in 1995, it was wrong to limit its application to only banks
below $250 million in assets, depriving many community banks from
regulatory relief. Currently, a bank with more than $250 million in
assets faces significantly more requirements that substantially increase
regulatory burdens without consistently producing additional benefits as
contemplated by the Community Reinvestment Act. The asset threshold for
the small bank examination should be raised to at least $1 billion.
Raising the limit to $1 billion is appropriate for two reasons. First,
keeping the focus of small banks on lending, which the small bank
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. Our Bank runs an average loan to deposit ratio of greater than
90% leaving little funding sources for the purchase of qualified CRA
investments. What funding is left is primarily needed for liquid
investments to serve as pledging for public funds. It is our belief that
a community bank’s main purpose is to lend to its community. Lending
dollars provide a much larger and more tangible benefit to the local
economy than purchasing an investment vehicle.
Second, raising the limit to $1 billion will have only a small effect
on the amount of total industry assets covered under the more
comprehensive large bank test. According to the Agencies’ own findings,
raising the limit from $250 to $500 million would reduce total industry
assets covered by large bank test by less than one percent. According to
December 31, 2003, Call Report data, raising the limit to $1 billion
will reduce the amount of assets subject to the much more burdensome
large bank test by only 4% (to about 85%). Yet, the additional relief
provided would again, be substantial, reducing the compliance burden on
more than 500 additional banks and savings associations (compared to a
$500 million limit). Accordingly, we urge the Agencies to raise the
limit to at least $1 billion, providing significant regulatory relief
while, to quote the Agencies in the proposal, not diminishing “in any
way the obligation of all insured depository institutions subject to CRA
to help meet the credit needs of their communities. Instead, the changes
are meant only to address the regulatory burden associated with
evaluating institutions under CRA.”
Additionally, we feel that the investment test should be voluntary
for banks of less than $1 billion. A $500 million bank is often in a
very difficult position competing for CRA qualified investments with
institutions over $1 billion in total assets. Institutions with over $1
billion in total assets have more monetary and personnel resources that
can be devoted to locating and funding CRA qualified investments.
Several CRA investment opportunities have been available in our
assessment area; however, the entire offering was purchased by
institutions over $1 billion in total assets. Community banks have a
difficult time competing with large financial institutions for CRA
qualified investments; however, they are graded under the same criteria.
If the agencies choose not to make the investment test voluntary for
banks with total assets less than $1 billion then an alternative could
be that the definition of community development investments be expanded
to include projects to support economic development even if not
specifically targeted to low- and moderate-income areas. Economic
development that is designed to benefit the entire assessment area
should be presumed to benefit low- and moderate-income residents by
improving the economy. Simply changing the definition of community
development investments would assist small banks in their ability to
find CRA qualified investments.
Finally, I am requesting that the agencies remove from the proposal
the section that would make certain practices considered predatory and
certain violations of other regulations a mandatory negative
consideration of the Bank’s CRA rating. These proposed rules belong in
existing consumer protection regulations. Loan underwriting standards
belong in lending regulations. The issue of predatory lending should be
dealt with directly through safety and soundness and consumer protection
rather than brought through the back door to the CRA evaluation.
Inclusion of this proposal within the CRA examination process would
further increase the regulatory burden placed on banks. This would cause
lengthening of the CRA examination process which causes an increase in
bank personnel resources not to mention additional agency resources.
In conclusion:
• We 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. However, we recommend that the eligibility
be raised to $1 billion rather than the proposed $500 million.
• We 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.
• We request that the investment test be voluntary for banks with
total assets under $1 billion.
• Finally, we request that the section of the proposal dealing with
predatory lending and violation of certain regulations be excluded from
the final regulation and handled under the compliance and safety and
soundness examinations.
While community banks, of course, still will be examined under CRA
for their record of helping to meet the credit needs of their
communities, these changes 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
Jon M. Jones
President
