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NORTHRIM BANK
September 16, 2004
Robert E. Feldman Executive Secretary
Attention: Comment/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, NW. Washington, DC 20429
Re: RIN # 3064-AC50
Subject: Proposed Revisions to the Community Reinvestment Act
Regulations Dear Mr. Feldman,
I am the President and CEO of Northrim Bank, a commercial bank
located in Anchorage,
Alaska. At $739 million in assets, we are subject to the large bank CRA
exam and data reporting requirements. I am writing to you to communicate
my strong support for the FDIC's proposal to change the definition of
"small bank" by raising the asset size threshold to $1 billion, without
regard to the size of a bank's holding company. I also support the
inclusion of a community development criterion in the small bank test,
but strongly oppose the addition of a separate community development
test. Lastly, I support amending the definition of "community
development" to include a focus on rural residents.
When the CRA regulations were rewritten in 1995, the most significant
improvement in the new regulations was the addition of the small
institution CRA examination, which actually did what the act required:
• It had examiners look at each bank's loans and assess whether the bank
was helping meet the credit needs of the bank's entire community.
• It did not impose an investment requirement on small banks, since the
act is about credit, not investment.
• It added no data reporting requirements on small banks, fulfilling the
promise of the act's sponsor, Senator Proxmire, that there would be no
additional paperwork or recordkeeping burden on banks if the act passed.
• And it created a simple, understandable assessment test of the bank's
record of providing credit in its community: the test considers the
institution's loan-to-deposit
ratio; the percentage of loans in its assessment areas; its record of
lending to borrowers of different income levels and businesses and farms
of different sizes; the geographic
distribution of its loans; and its record of taking action, if
warranted, in response to written complaints about its performance in
helping to meet credit needs in its assessment areas.
Since then, the overall regulatory burden on small banks has been
increasing. Examples include new data gathering and reporting
requirements under HMDA, the USA Patriot Act, the privacy and
information security provisions of the Gramm-Leach-Bliley Act, and
recent amendments to the Fair Credit Reporting Act. But the nature of
community banks has not changed. When a community bank must comply with
the extensive requirements of the large institution CRA data gathering
and reporting, and the large bank CRA examination, the costs to and
burdens on that community bank increase dramatically.
The transition from a small bank to a large bank, for purposes of CRA,
imposed a very large additional burden to my bank here in Alaska. Due to
the loan data collection and reporting requirements, the need to
document investments and services, and the time required for CRA exam
preparation, the CRA Officer position increased from 25% to 100% of an
officer's job. In addition, the Chief Financial Officer spent began
spending countless hours working on the details of complex community
development investments to try to meet the unspecified and arbitrary
"qualified investment" threshold. As a large bank, by CRA definition, we
have experienced CRA examiners arbitrarily assigning levels of value
that were lower than what we expected to the number and dollars of our
qualified community development donations and investments. These were
donations and investments that greatly benefited our communities and on
which our bank spent numerous hours and significant financial resources.
The time spent on managing these investment decisions imposed a
significantly higher regulatory burden that drains both money and
personnel away from our staff being able to help meet the credit needs
of our communities.
I believe that it is as true today as it was in 1995, and in 1977 when
Congress originally enacted CRA, that a community bank's role is to meet
the credit needs of its community by making a certain amount of loans
relative to its deposits. A community bank's operations are typically
not complex; it's basically taking in deposits and making loans. Its
business activities are usually focused on small, defined geographic
areas where the bank is known in the community. The small institution
examination accurately captures the information necessary for examiners
to assess whether a community bank is helping to meet the credit needs
of its community.
While the small institution test was the most significant improvement
of the revised CRA, it was not appropriate to limit its application only
to banks with less than $250 million in assets, because it deprived many
community banks from any regulatory relief. Currently, a bank with more
than $250 million in assets faces significant requirements that
substantially increase regulatory burdens without consistently producing
additional benefits as intended by the Community Reinvestment Act. In
today's banking market, even $500 million to $1 billion banks often have
only a handful of branches.
This proposal reflects a more appropriate implementation of the
Community Reinvestment Act and is clearly a major step toward reducing
the regulatory burden on those institutions that would be defined as
"small" institutions. This change would not reduce the number or quality
of small business and affordable housing loans that we make, but it
would relieve Northrim Bank from the requirement to meet the same CRA
standards that are imposed on the nation's largest $1 trillion banks. In
addition, it would reduce Northrim' s staff burden by one-fourth to
one-half of an officer level position through elimination of loan data
collection, editing and reporting to the Federal Reserve, plus other
activities related to preparation for a large bank CRA exam. It would
also eliminate the bank's need for an annual subscription to CRA data
management software. I estimate that the proposed change to the small
bank definition could save the bank upwards of $25,000 per year.
I also support the addition of a community development criterion to
the small bank examination for banks over $500 million. The current
small bank test looks primarily at lending, and adding community
development lending (and services to aid lending and investments as a
substitute for lending) to the exam seems to fit well within the goal of
serving the entire community. However, I oppose the idea of adding a
separate community development test, as it would seriously negate any
regulatory relief gained by the streamlined exam and it would compound
the complexity of measuring the relative value of loans vs. investments
vs. services. It would also create the impression that community
development lending is different from the provision of credit to the
entire community.
We have experienced difficulties finding qualified investments of the
size and complexity expected by our CRA examiners in our communities.
Those few that are available in our markets have been difficult to make
because we have to compete with much larger institutions that want to
"grab up" all of them. As the smallest "large CRA bank" in Anchorage, we
compete for limited qualified investments with a local institution three
times our asset size ($2.1 billion,) as well as with Wells Fargo and Key
Bank. Mortgage-backed securities, used by many institutions in the lower
48 as community development investments, are not readily available for
Alaska mortgages, as recognized by our FDIC examiners. Low Income
Housing Tax Credit projects in our assessment areas are few and far
between. Instituting a separate Community Development test that includes
lending, investments, and services would increase the level of
regulatory burden experienced by us and by our examiners.
I 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. Rather than providing a specific
definition for "rural," I believe the FDIC should rely on the definition
of "rural" that each community, county, or state uses in providing
services to its communities. Alaska has many rural communities that
would benefit from the inclusion of a focus on rural residents in the
community development definition.
In conclusion, I strongly support changing the definition of "small
bank" to include those with assets of $1 billion or less. I see this as
a vitally important step in improving the CRA regulations and in
reducing regulatory burden on our nation's smaller banks. I also support
eliminating the separate holding company qualification for the small
institution examination, since it places small community banks that are
part of a larger holding company at a disadvantage with their peers and
has no legal basis in the act. Community banks will still be examined
under CRA for their record of helping to meet the credit needs of their
communities; however, this change will eliminate some of the most
problematic and burdensome elements of the current CRA regulation faced
by community banks now drowning in regulatory red-tape.
Sincerely,
R. Marc Langland
Chairman, President , and CEO Northrim Bank
Northrim BanCorp Inc.
P.O. Box 241489
Anchorage, Alaska 99524-1489
Phone: (907) 562-0062 • (800) 478-2265
Cc: The Honorable Alan Greenspan,
Chairman
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
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