Kansas
Bankers Association
March 25, 2004
Office of the Comptroller of the Currency
Attn: Docket No. 04-06
Federal Deposit Insurance Corporation
Attn: Comments - 12 CFR Part 345
Federal Reserve System
Attn: Docket No. R-1181
Re: Community Reinvestment Act Regulations Proposed Revisions
Federal Banking Regulatory Agencies:
Thank you for the opportunity to offer comments on the proposed
revisions to the Community Reinvestment Act (CRA). As a non-profit
trade organization having 355 of the 359 Kansas banks as its members,
the Kansas Bankers Association represents a diverse group in terms
of size, representing banks with over $2.5 billion in total assets
to the smallest bank in Kansas with $2.5 million in total assets.
The comments that follow will reflect our diverse membership and
hopefully will provide some insight as the regulation is revised.
The request for comments specified certain changes that were being
contemplated. This letter will attempt to address those proposed
changes:
Small institution
definition. We support the proposed changes to the definition of “small institution” that
increase the asset threshold from $250 million to $500 million
and that eliminate
any consideration of whether the small institution is owned by a
holding company. There is no question but that the regulatory burden
on smaller banks is exponentially greater and still growing as we
enter the brave new world of assisting the anti-terrorism efforts
through the USA PATRIOT Act. Our data tells us that the banks with
$500 million or less average 26 full-time employees. Banks, like
other employers, find that their largest expense internally is their
employees, i.e., the cost of salary and benefits to attract and maintain
good people. It is not within the budget of many of these smaller
institutions to hire a compliance officer to do nothing but compliance.
Many of these banks share the duties of compliance among various
officers of the bank. It would be so much more beneficial for the
bank and for the community for these employees to be able to focus
on meeting the credit needs of the community, rather than focusing
on documentation of services and investments.
We also strongly support the proposal to not consider whether a small
institution is a part of a holding company. These institutions
operate quite independently of the holding company. Every bank
is evaluated internally on its own merits and must pass the muster
of its owners’ projections and expectations independently
of other units in the holding company. It only makes sense that
the regulation would treat them the same way.
In light of these
comments, we would urge the Agencies to take an even broader view
of the “small institution” definition.
The original purpose of the CRA was to encourage banks to make efforts
to see that the credit needs of their communities were being met.
We believe that the more banks are allowed to focus on lending and
not on documentation of services and investments, the better they
are able to serve their communities.
Lending
test.
We support the proposal to weigh loan purchases equally with loan
originations
as banks do engage in virtually the same analysis
before adding either type of loan to their portfolio. We would question
the need to keep them separate for the public evaluation’s
display of loan data. That implies that the examiners do not really
view them equally.
Investment
test.
Again, we would urge the agencies to re-evaluate whether any size
institution
should have to seek out “innovative” and “complex” investments
that are not consistent with the institution’s business plan.
We again look to the original purpose of the CRA and its intent to
see that institutions were helping meet the credit needs of their
communities. Perhaps the communities are not needing “innovative” and “complex” investments?
How much time should an institution devote to finding such investments
outside their assessment area?
In answer to the specific questions asked by the proposal, we would
respond that:
1) an institution’s community development activities outside
the assessment area should be weighted equally with activities inside
the area when: a) there are limited opportunities inside the assessment
area for investment; or b) when the investment outside the assessment
area benefits the institution’s assessment area somehow;
2) the “innovative” and “complex” criteria
should be abandoned as the institutions should be evaluated on
the maximum community impact of the investment regardless of
whether
it is simple or complex, or something that has been tried and
true elsewhere and not innovative;
3) the supply and demand for investments will vary year to year so
that institutions should get some credit for continuing an investment
year to year; and
4) many grants and community development programs have a stated
purpose in the body of the document that creates them so that would
be a logical place to look to see whether the activity is serving
low- and moderate-income people.
Data
Collection and Reporting. The Agencies recently requested comment on the initiative
to reduce
regulatory burden – specifically
requesting comment on the lending-related consumer protection rules.
The KBA surveyed its members on specific topics and the rule specified
as being the most burdensome by those who returned the survey was
the HMDA data collection. Those surveyed believe that this data is
not very useful and is interesting only to community organizations
who dig through it to find something harmful to the banking industry.
In light of these comments, we would question who benefits from the
information being reported by census tract? The average customer
is not going to even know of the change, unless someone sifting through
the data calls them because they were able to identify their loan
using deductive skills. We believe in this era of concern over privacy
that this is not a necessary change.
Enhancement
of Public Performance Evaluations. The proposal asks whether the agencies’ decision to disclose information newly
available due to changes in HMDA reporting in the CRA public performance
evaluation is going to make these public evaluations more effective
in communicating an institution’s contribution to meeting credit
needs of the community. While we do not believe the addition of this
information is useful to members of the general public who may not
be able to piece it together with the rest of the information available
in the public evaluation, it is a fact that the information is being
reported under HMDA and already available to the groups who are eager
to have it.
In conclusion,
it is safe to say that the industry as represented by our membership,
believes
that too much time is still spent in
efforts to prove to the examiners that the bank is doing what it
opened its doors to do – lend money to the community. While
the industry recognizes that this would in no way diminish the obligation
of small institutions to help meet the credit needs of their communities,
the proposal to expand the small bank institution definition is definitely
needed and evidence of movement in the right direction. Thank you
for your time and attention to this most important matter.
Sincerely,
James S. Maag
Presdent
Kathleen Taylor Olsen
Associate General Counsel
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