Federal Deposit
Insurance Corporation

October 7, 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

Dear Mr. Feldman,

As a community banker, I strongly support the proposal to increase the asset size of banks eligible for the small bank streamlined Community Reinvestment Act (CRA) examination from $250 million to $1 billion and the elimination of the holding company asset size limit (currently $1 billion). Community Bank and Trust ($280M) is located in Neosho, MO and is a Federal Reserve member bank currently subject to the large bank CRA examination. Our assessment area includes the Joplin MSA and the rural counties of McDonald County, MO and Cherokee County, KS. This would greatly relieve the regulatory burden imposed on many small banks under the current regulation, which are required to meet the standards imposed on the nation’s largest $1 trillion banks.

Banks incur significant regulatory burdens and costs compiling data to document CRA performance. We spend approximately 200 hours annually collecting the required data on small business and small farm lending. In addition, we spend approximately 40 hours annually summarizing, analyzing and documenting our charitable contributions to determine if they will qualify for the investment test.

As many commenters have suggested, changes in the industry since the 1995 revisions have rendered the small bank threshold out of date. As the Board of Governors (“Board”) points out, “the gap in assets between the smallest and largest institutions has grown substantially since the line was drawn at $250 million in 1995. The number of institutions defined as small has declined by over 2,000 since the threshold was set and their percentage of industry assets has declined substantially.” Consolidation continues in the banking industry where large banks seek to achieve savings through economies of scale. How do you effectively compare a $500 million dollar bank with a $500 billion dollar bank using the same examination procedures? A better measure of CRA performance is to evaluate banks against peers within a similar asset size and geographic location.

I also support the addition of a community development criterion to the small bank examination for larger community banks. It appears to be a significant improvement over the investment test. However, I 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 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.

Most institutions receive a satisfactory overall CRA rating. In order for Community Bank and Trust to receive an outstanding overall rating, it would require outstanding ratings on both the lending and service tests due to the fact that we have never received higher than a low satisfactory on our investment test. As pointed out in our last CRA examination, community development investment opportunities are very limited in our assessment area. Basically, we spend numerous hours documenting the required information that will potentially never change our overall CRA rating.

I 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.

I 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. I think that this change in the definition will go a long way toward eliminating the current distortions in the regulation. 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. For eligibility for the Federal Home Loan Bank’s Rural Homeownership Fund they have defined “rural” as follows: (1) Any housing located outside of a Metropolitan Statistical Area (MSA) where the population is 25,000 or less or (2) Any housing located in an area eligible for USDA Rural Housing Service programs.

It is important to recognize that smaller institutions play a vital role in their community development efforts. The very survival of a community bank is directly related to serving the credit needs of their assessment area. Increasing the asset size of banks eligible for the streamlined CRA examination will not relieve small banks from CRA responsibilities. Instead it will enable small banks to focus more resources on providing innovative products and delivery mechanisms to our customers rather than generating burdensome lending data reports.

We believe that the FDIC has proposed a major improvement in the CRA regulations, one that much more closely aligns the regulation with the Act itself. Per the Board’s estimates, the change would approximately halve the number of institutions subject to the large retail test (to roughly 11% of all insured depository institutions), but the percentage of industry assets subject to the large retail test would decline only slightly, from a little more than 90% to a little less than 90%.

I would like to close by quoting a comment from the FDIC Vice Chairman’s speech concerning Regulatory Burden on America’s Community-Based Banks that was delivered to a subcommittee of the U. S. House of Representatives on May 12, 2004. Mr. Reich stated “I am a strong proponent of market forces determining economic outcomes. If community banks lose out in a fair and square competition with credit unions or larger banks, so be it—let the market speak and the chips fall where they may. But if smaller banks will be weakened in the market not by competition or technology, but inadvertently or unintentionally by the disproportionate effect of regulatory burden, and by competition from financial institutions not subject to the same regulations, that outcome seems to be inequitable and unacceptable. We need to think about the appropriate public policy response to prevent this outcome.”

Respectfully,
Rudolph E. Farber
Chairman
Community Bank and Trust
100 S. Wood; P O Box 400
Neosho, MO 64850