| VIRGINIA BANKERS
ASSOCIATION
October 8, 2004
Mr. Robert B. Feldman, Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429
Re: RIN 3064-AC5O
Community Reinvestment Act (CRA)
Dear Mr. Feldman:
I am writing on behalf of the Virginia Bankers Association to comment
on the FDIC’s proposed changes to its CRA regulation. We applaud the
FDIC’s proposal to raise the definition of “small bank,” for purposes of
determining those banks eligible for the streamlined examination
standards, from $250 million in assets to $1 billion in assets
regardless of holding company affiliation. We believe the arguments in
support of such a change are compelling, and urge the FDIC to finalize
its proposal at the earliest possible time.
We stress that community banks in Virginia, many of which are state
nonmember banks, are under enormous regulatory strain. New requirements
under the USA Patriot Act and the Sarbannes-Oxley Act have pushed the
overall burden on such banks to a new high. This burden hits our
community banks particularly hard, as they simply do not have the
resources available to address compliance that the large banks have. In
light of this compliance burden, we believe the FDIC should remain ever
vigilant in reducing the burden whenever it can. CRA is an area where
the FDIC can, and should, reduce the burden on small banks.
In this regard, community banks subject to the large bank exam
standards under CRA have had the greatest compliance challenges of all
banks. As indicated, they do not have the resources to devote to the
detailed CRA administrative requirements that larger banks do, and yet
are subject to the very same standards. Increasing the threshold for
streamlined exam eligibility would benefit these banks significantly,
without in any way affecting their CRA lending.
In particular, Virginia Community banks, by the very nature of their
business, are lending to all segments of the communities they serve. CRA
loans are an important part of their business.
Changing the definition of “small bank” recognizes the significant
institutional growth that has taken place since the current $250 million
threshold was established in 1995. Indeed, the number of institutions
defined as “small banks” has declined by over
2,000 since the threshold was set in 1995, and their percentage of
industry assets has declined substantially. Moreover, much asset growth
since 1995 has been due to inflation, not real growth. Thus, the
proposed increase in the threshold is warranted simply based on
institutional growth and inflation.
It is also justified because small banks can simply not compete
against large banks for qualified investments in their communities. The
large bank test, with its investment component, simply doesn’t work for
community banks.
Finally, we note that increasing the threshold to $1 billion will not
impact the vast majority of bank assets, which, because they are hold by
large institutions, will still be subject to the full CRA examination
process. But it will relieve smaller institutions of unnecessary and, we
believe, inappropriate regulations. Again, the cost of compliance for
institutions just above the current threshold is disproportionately high
relative to institutions above the threshold. The FDIC is right to
address this by increasing the threshold to $1 billion.
We do not believe, however, that the FDIC should adopt a community
development criterion for institutions between $250 million and $1
billion. Such criterion would create regulatory burden without adding
any countervailing benefit in assessing how a bank is doing in meeting
the credit needs of low to moderate income individuals in the
communities it serves.
In summary, we commend the FDIC for pursuing the right course on this
issue. Our community bank members are incurring significant costs in CRA
compliance that many of their competitors (e.g., credit unions) are not.
Making CRA easier for our community banks by reducing unnecessary
administrative requirements will ease compliance burdens (while in no
way affecting CRA lending) and thereby allow them to compete more
effectively in the marketplace. We appreciate the opportunity to
comment.
Sincerely,
William H. Hayter
President & CEO
P.O. Box 1000
Abingdon, Virginia 24212-1000 |
