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ROYAL AMERICAN BANK
October 9, 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: FDIC Proposed Increase in the Threshold for
the Small Bank CRA Streamlined Examination
Dear Mr. Feldman,
I am the Executive Vice President and Chief Financial Officer of
Royal American Bank, located in Inverness, Illinois, a northwest suburb
of Chicago. My bank is approximately $400 million in asset size and is
currently in the transition from a small to large CRA bank. I am 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 small banks such as my own under the
current regulations, which are required to meet the standards imposed on
the nation's largest $1 trillion banks. I understand that this is not an
exemption from CRA and that my bank would still have to help meet the
credit needs of its entire community and be evaluated by my regulator.
However, I estimate that this would lower the bank’s current regulatory
burden by at least 1000 man-hours per year, or the cost of one half of a
rather skilled employee.
I 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, 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 the intent of Congress when it enacted CRA.
An additional reason I support the FDIC's CD criterion is that it
significantly reduces the current regulation's "cliff effect." Today,
when a small bank goes over $250 million, such as ours has recently
done, it must completely reorganize its CRA program and begin a massive
new reporting, monitoring and investment program. If the current
proposal is adopted, 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
trillion dollar banks. This more graduated transition to the large bank
examination would be a significant improvement over the current
regulation.
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.
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 itself, and I urge
the FDIC to adopt its proposal, with the recommendations above. I will
be happy to discuss these issues further with you, if that would be
helpful.
Sincerely,
Mary King Wilson
Executive Vice President and
Chief Financial Officer
For the Executive Group of
Royal American Bank:
J. J. Fritz – Chairman and CEO
Kelly J. O’Keeffe - President
Brogan M. Ptacin – Executive Vice President
Mary King Wilson – Executive Vice President and
Chief Financial Officer
cc: Federal Reserve Board |
