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FDIC Federal Register Citations

CENTRAL STATE BANK

From: Cindy Rusch [mailto:Cindy.Rusch@centralstate.com]
Sent: Tuesday, October 05, 2004 9:55 AM
To: Comment
Cc: 'psmith@aba.com'
Subject: RIN No. 3064-AC50

October 4, 2004

Mr. Robert E. Feldman, Executive Secretary
Attn: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th St NW
Washington, DC 20429

RE: RIN Number 3064-AC50

Dear Mr. Feldman:

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 regulation, which are required to meet the standards imposed on the nation’s largest $1 trillion banks.

I am President of Central State Bank in Muscatine, Iowa, a community in rural Iowa with a population of 23,000. Central State Bank is $265 million in assets and has been subject to the large-bank CRA examination for the past several years. We are in the midst of our first large-bank CRA examination. I am also President of a small four-bank holding company, which in addition to Central State Bank includes a $175 million bank in Galesburg, Illinois, a central Illinois community of 33,000 people; a $38 million bank in Washington, Iowa, a small town of 5,000 residents; and an $85 million bank in Iowa City, Iowa.

This proposal will greatly alleviate unnecessary paperwork and examination burden without weakening our commitment to reinvest in our communities. Reinvesting in our communities is something we do every day as a matter of good business. Our banks will not long survive if our local communities don’t thrive, which means that our banks must be responsive to community needs and promote and support community and economic development.

We believe so strongly in our responsibility to each community we serve that we have maintained separate charters with local Boards of Directors in each of these communities, even though they are all within 75 miles of our headquarters, and some of them are only 20 miles away. We are committed to serving those communities regardless of regulatory requirements. I understand that this proposal is not an exemption from CRA and that our banks would still have to help meet the credit needs of the community they serve and be evaluated by our regulator. The only thing that would change is the regulatory burden. Central State Bank’s large-bank examination has increased our regulatory burden by 1,000 hours per year and additional costs of approximately $25,000; money and time that benefits no one.

I do not support the addition of a community development criterion to the small-bank examination for larger community banks. As our examiners know, it is extremely difficult for small banks like Central State Bank to find appropriate CRA qualified investments in their communities. Central State Bank has made a statewide investment in a low-income housing tax credit pool to attempt to meet our requirement under this part of the regulation. None of the low-income projects are within 50 miles of our community. This was certainly not the intent of Congress when it enacted CRA.

If the FDIC feels it is necessary to adopt the new community development criterion, I strongly urge the threshold to be set at $500 million 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.

Again, while I oppose the CD criterion, it would be better than Central State Bank’s current large- bank regulation. I agree that the current proposal with the CD criterion would provide for an expanded, but still streamlined, small-bank examination with the flexibility to mix community development loans, services, and investments to meet the new criterion. This would be far more appropriate than subjecting small banks under $1 billion to the same large bank examination that applies to $100 billion, $300 billion, or $1 trillion banking organizations with branches over 5, 10, or 40 states. (Central State Bank has branches only in Muscatine, Iowa.)

If the CD criterion is to be added, I strongly oppose making it 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 overall lending in its community. A separate test would create an additional CD obligation and regulatory burden that will erode the benefits of the streamlined examination. We recently purchased two locally arranged bonds issued by the City of Muscatine. These are not general obligation bonds, but are repayable solely from tax increments in two TIF districts in our community. In one case, the proceeds are being used to clean up our Mississippi Riverfront and, in the other case, the funds are being used to construct a new airport facility. These are projects the majority of our citizens wanted done and were individually voted on and approved by our local City Council. This is community development, supporting the needs of our local citizens. Under the current large-bank regulation, these do not qualify as community development lending.

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. As a rural bank, we are frequently called upon to support needed economic or infrastructure development (such as those mentioned above) or make loans that help create needed or better paying jobs. We are currently the largest agricultural lender within 50 miles. Most of these loans are to farmers and agri-businesses that have total annual revenue under $1 million. This represents the core or base of our economy.

The FDIC’s proposed changes to CRA are needed to help alleviate regulatory burden. Without changes such as these, more and more community banks like mine will find they cannot sustain independent existence because of the crushing regulatory burden and will opt to sell out. I am sure you do not believe that the elimination of hundreds or even thousands of community banks with the resultant network of large bank branches will improve the economic vitality of any community. Think of the volume of regulatory burden that has been added to banks in the short 4 ½ years of the 21st century. When the rare opportunity comes along to reduce the regulatory burden without jeopardizing the safety and soundness of the system or without a detrimental impact to our communities (this is all about reducing paperwork, not our responsibility to our communities), action should be taken. By easing regulatory burden, it will make it easier for community banks like mine to continue to provide committed service to local communities that few other financial service providers are willing to do.

Sincerely,

Dennis H. McDonald

President

 

Last Updated 10/08/2004 regs@fdic.gov

Last Updated: August 4, 2024