Guaranty Bank and Trust Company
From: McClenathan, Sheryl
Sent: Thursday, September 09, 2004 4:32 PM
To: Comments
Subject: RIN 3064-AC50
To Whom it May Concern,
Please accept
this correspondence as Guaranty Bank and Trust Company’s
comment of support for the proposed revisions to 12 CFR 345, implementing
the Community Reinvestment Act (CRA) that would: a) change the definition
of "small bank" to raise the asset size threshold to $1
billion regardless of holding company affiliation; b) add a community
development activity criterion to the streamlined evaluation method
for small banks with assets greater than $250 million and up to $1
billion; and c) expand the definition of "community development" to
encompass a broader range of activities in rural areas.
Guaranty Bank is a state-chartered, community bank headquartered
in Cedar Rapids, Iowa with assets of approximately $250 million.
Community banks are put at a competitive disadvantage since non-banks
and credit unions are not subject to the same CRA requirements.
The small bank threshold should be raised from $250 million to
$1 billion. As a community banker, I greatly welcome the regulators'
effort on raising the threshold. The community banking industry
is slowly being crushed under the cumulative weight of regulatory
burden, something that must be addressed by Congress and the regulatory
agencies before it is too late. This is especially true for CRA,
though well intentioned, unnecessarily increases costs for community
banks that are passed on to consumers. The data collection and
analysis that must be done for the large bank CRA examination almost
always requires an institution to purchase additional costly software
such CRA Wiz and hire additional employees.
Although small banks do not have to track and report their loans
under the current rules, data is available at the time of an exam
to provide examiners with the information on a limited segment
of the bank’s portfolio, to demonstrate it’s lending
activities, as well as it’s ability to make qualified investments
and provide for other banking activities and services provided
in it’s assessment areas. This information is available because
most small banks (and large ones too for that matter) can track
their loans internally by some easy coding method, without having
to do excessive record keeping, financial information tracking,
etc. It is far easier to only have to look up a small amount of
additional information for specific loans or customers at the time
of an exam, than be subjected to excessive and expensive record
keeping, tracking and reporting, year after year after year.
As stated in the Federal Register, when the $250 million small
bank definition was adopted in 1995, 20% of insured financial institutions
were classified as large with those same institutions holding 86%
of the total assets. In 2004, 25% are now classified as large with
over 93% of the assets. Because of mergers and acquisitions, only
6% of financial institutions by number are over $1 billion but
that same 6% holds 85% of total assets. If the small bank threshold
were to be increased to $1 billion, the same percentage of assets
being examined under the large bank criteria would stay virtually
the same as it was when it was initially implemented in 1995.
Since 1995 when the small institution test was created, the gap
in assets between the smallest and largest institutions has grown
substantially. As of 6/04, there are 401 institutions with assets
greater than $1 billion and they hold 78% of all bank assets. The
813 institutions in our size category - $100 million to $300 million
- hold only about 2% of all bank assets. The 985 banks in the $300
million to $1 billion category hold less than 6% of total bank
assets. This disparity supports raising the threshold for the large
bank examination to make most efficient use of examiner resources
without a detrimental impact on the goals of the CRA.
The cost of complying with new and existing regulations is overly
burdensome for banks with assets under $1 billion. New regulations
under HMDA, the USA Patriot Act, the Gramm-Leach-Bliley Act, Check
21, and the FACT Act are adding enormous costs to community banks'
overhead and are drawing critical resources away from serving the
credit needs of our customers. Streamlining CRA examination procedures
for banks with assets under $1 billion would be consistent with
recent changes to the FDIC's safety and soundness examination procedures
under the MERIT (Maximum Efficiency, Risk-Focused, Institution
Targeted) examination program.
Community banks like Guaranty Bank are already at a competitive
disadvantage to credit unions and other financial entities that
do not have the same regulatory burden as commercial banks, especially
in areas like Community Reinvestment. Enlarging the "small
institution" definition will help restore competitive balance
in our industry.
I don’t believe that it would be a good idea to add a new
community development criterion to the small bank examination for
banks between $250 million and $1 billion. In small community banks,
bankers many times perform more than one role at an institution.
By adding the community development criterion to the small bank
examination it adds time consuming accumulation of additional data
on the compliance function similar to the large bank CRA examination.
Adding the community development criterion stretches already limited
resources at community banks and provides no urgently needed relief
to institutions sized between $250 million and $1 billion.
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 intent of Congress when it enacted CRA.
In addition, the proposal does not explain what the community development
criterion is or how it will be tested. If FDIC adds community development
criterion, how would it be quantified? The proposal states “banks
would be required to engage in activities based on opportunities
in the market and the bank’s strategic strengths.” How
will the agency test this criterion? What if the bank uses staff
and time resources and does not get results? In 1995, the Agencies
did away with giving CRA credit based on a bank’s effort
rather than the bank’s results. Is the proposal suggesting
that the Agency will again review banks based on how hard they
try and not just the dollar result of the CD loan, investment or
service? This seems like a step backward. Such a system would definitely
increase the burden on banks because they will have to document
their efforts in addition to documenting their results.
I also support the recommendation to change the definition of “community
development” to benefit not just low- and moderate-income
residents but also residents of rural areas.
Opponents to changing the current CRA rules argue that data supports
that a void exists and banks are not meeting the needs of our rural
communities. However, they seem to ignore the fact that no bank
is exempt from the CRA, and a "small" bank evaluation
exists. In fact, over 98% of CRA examinations for these institutions
have resulted in Satisfactory or Outstanding ratings. These ratings
cannot be discounted and support the fact that for many rural communities,
their bank is the catalyst for community development.
Community activists and some within the regulatory agencies wrongfully
assume that the reinvestment that takes place in rural communities
is a result of the CRA. To the contrary, community bankers reinvest
locally because the long-term viability of their institution and
the economic prosperity of the community depends upon it. Ideally,
the CRA rating would be a reflection of these efforts.
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 intent. I urge the FDIC to
adopt its proposal, with the recommendations above.
Sheryl McClenathan
Internal Auditor/Compliance Officer
Guaranty Bank and Trust Company
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