INDIANA BANKERS ASSOCIATION
September 14, 2004
Mr. Robert E. Feldman, Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street NW
Washington DC 20429
RE: RIN Number 3064-AC50
Proposed Increase in Threshold for Small Bank CRA Streamlined
Examination
Dear Mr. Feldman:
The Indiana Bankers Association (“IBA”) is a state trade association
with members ranging from the smallest to the largest in size and of all
bank and thrift charter types operating in Indiana. The proposed
amendments would have a direct impact on the operational costs and
procedures of many of our member institutions. We are writing to
strongly support the FDIC’s proposal to raise the threshold for the
streamlined small bank CRA examination to $1 billion without regard to
the size of the bank’s holding company. This would greatly relieve the
regulatory burden imposed on many of our smaller members, which are
required to meet the standards imposed on the nation’s largest $1
trillion banks. We understand that this is not an exemption from CRA and
that our member banks would still have to help meet the credit needs of
their entire community and be evaluated by their regulators. However, we
believe that this would lower many of our member’s current regulatory
both in man-hours spend and cost.
We also support the addition of a community development (“CD”)
criterion to the small bank examination for larger community banks. It
appears to be a significant improvement over the investment test.
However, we urge the FDIC to adopt its original $500 million threshold
for small banks without a CD criterion and only apply the new CD
criterion to community banks greater than $500 million up to $1 billion.
Banks under $500 million now hold about the same percent of overall
industry assets as community banks under $250 million did a decade ago
when the revised CRA regulations were adopted, so this adjustment in the
CRA threshold is appropriate. 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 of
our small member banks have had to make regional or statewide
investments that are extremely unlikely to ever benefit the bank’s own
communities. That was certainly not the intent of Congress when it
enacted CRA.
An additional reason to support the FDIC’s CD criterion is that it
significantly reduces the current regulations, “cliff effect.” Today,
when a small bank goes over $250 milllion, it must completely reorganize
its CRA program and begin a massive new reporting, monitoring and
investment program. If the FDIC adopts its proposal, a state nonmember
bank would move from the small bank examination to an expanded but still
streamlined small bank examination, with the flexibility to mix
Community Development loans, services and investments to meet the new CD
criterion. This would be far more appropriate to the size of the bank,
and far better than subjecting the community bank to the same large bank
examination that applies to $1 trillion banks. This more graduated
transition to the large bank examination is a significant improvement
over the current regulation and would be beneficial to our member banks.
We strongly oppose making the CD criterion a separate test from the
bank’s overall CRA evaluation. For a community bank, CD lending is not
significantly different from the provision of credit to the entire
community. The current small bank test considers the institution’s
overall lending in its community. The addition of a category of CD
lending (and services to aid lending and investments as a substitute for
lending) fits well within the concept of serving the whole community. A
separate test would create an additional CD obligation and regulatory
burden that would erode the benefit of the streamlined exam for our
smaller member banks.
We strongly support the FDIC’s proposal to change the definition of
“community development’ from only focusing on low- and moderate-income
area residents to including rural residents. We think that this change
in the definition will go a long way toward eliminating the current
distortions in the regulation, and it would be beneficial to our members
which have rural areas as a significant portion of their assessment
area.We caution the FDIC to provide a definition of “rural” that will
not be subject to misuse to favor just affluent residents of rural
areas.
In conclusion, we 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 itself, and we
respectfully urge the FDIC to adopt its proposal, with the
recommendations above. Thank you for considering our comments on this
important issue.
Sincerely,
James Cousins
Indiana Bankers Association
3135 North Meridian Street
Indianapolis, IN 46208
