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FDIC Federal Register Citations

NORTH DAKOTA BANKERS ASSOCIATION

September 16, 2004

Robert Feldman
Executive Secretary
Attention: Comments/Legal ESS Via Email Only
Federal Deposit Insurance Corporation comments@FDIC.gov

RE: RIN number 3064-AC50

Dear Mr. Feldman:

The North Dakota Bankers Association (“NDBA”) appreciates this opportunity to submit additional comments regarding the proposal to change the definition of “small bank” to raise the asset size threshold to $1 billion irrespective of affiliation with a holding company and to make additional changes to the community development activity criterion for streamlined CRA evaluation. NDBA is a financial institution trade association. Our members are banks and federal thrift associations which operate offices throughout North Dakota. All but one NDBA state chartered bank members would be “small banks” if the threshold is raised to $1 billion.

North Dakota is among the most rural states in the United States. In our state there are only three Metropolitan Statistical Areas (Bismarck, Fargo and Grand Forks) and only one combined Metropolitan/Micropolitan Statistical Area (Fargo-Wahpeton). North Dakota banks exemplify community banking and service; they have established over 400 branch offices to provide financial services in even the very smallest communities. NDBA could not more strongly support the FDIC’s proposal to provide North Dakota banks with meaningful relief from regulatory burden by defining banks of less than $1 billion in assets as small banks for CRA examination purposes.

Most North Dakota state chartered banks are small banks under the current definition. However, several are pushing the $250 limit and others are between $250 million and $1 billion in assets. These banks are all growing for a variety of reasons including expansions via new branch offices and consolidation. For banks that are nearing the $250 million threshold, the effect of a failure to increase the small bank threshold is clear. Even before they lose small bank status, they must begin to reallocate resources away from community lending to gear up for expanded CRA documentation and reporting. The proposed change in definition keeps these small banks’ attention and resources involved in community lending, instead of diverting them to compliance. For banks over $250, but under $1 billion in assets, the effect of the change is equally promising. Restoration to small bank status will allow them to reallocate money and manpower back to providing financial services and lending in their service areas.

North Dakota bankers very much appreciate the new focus on service to rural residents as a separate matter from urban community development and low and moderate income housing is. Too often small banks have had to look past their own communities to investments that promote regional community development project and qualify for positive CRA consideration, but which, in actuality promote progress for urbanites, instead of the banks’ own community. Accordingly, NDBA is extremely enthusiastic about the proposal to include services to rural residents to the definition of “community development”. This change is an overdue recognition that the provision of banking services and lending to rural residents is critical community development and unsurpassed as a method for keeping rural communities viable and vital.

We urge FDIC to adopt a common sense and guidance based approach to assess whether a bank is providing service to rural residents and to accord substantial deference to a bank’s judgment and strategies for serving rural residents. In this vein, we suggest that the delineation of this new category of community development be made through descriptions of activities which will not be deemed to be service to rural residents. This approach adheres to current regulatory practice regarding undesirable or unacceptable practices for financial service for consumers and would make it clear that this new category of community development is not met, for example, by programs for financing a second, country homes for the affluent.

At this time we oppose making community development a separate component of the small bank CRA evaluation for small banks under $250 million because that would impose a regulatory burden which has not been demonstrated to be needed. In North Dakota, banks work very hard to achieve an “outstanding” CRA ratings and a substantial percentage of them have succeeded. North Dakota banks have long exhibited their commitment to lending and other community development activities without extra regulatory prodding. North Dakota banks invest in community lending and development because that is the business they are in and because investments in community development through lending and otherwise is what keeps the bank in business. We are also concerned that making “community development” a separate examination item for banks under $250 million in assets distorts the purpose of CRA, encouraging local lending, and will cause the banks to conclude they must look to “community development” actions other than lending to meet their CRA obligations. This would be wrong and actually detrimental to rural community development. Our banks have only so many resources to go around and each separate regulatory burden which is placed on them consumes those resources. In short, adding “community development” as a separate CRA criterion for banks under $250 million in assets will have no beneficial effect in North Dakota. It will simply increase regulatory burden for most of our banks and decrease the resources for community lending.

Frankly, NDBA believes that the addition of a separate small bank community development criterion is demonstrably unwarranted for North Dakota banks and will have the effect of deflecting our banks’ attention from lending in the communities of our state- the conduct CRA was intended to encourage. Here, the reality is that banks which have started out in small communities and which have developed successful strategies for growth within North Dakota are one reason our smallest communities have bank branch offices to serve residents. The FDIC web site does not report one single North Dakota bank as having received a CRA rating below satisfactory. This is the most concrete evidence available that the banks themselves are in the best position to determine how to effectively and efficiently meet their CRA obligations. However, if FDIC is committed to the concept of adding a separate community development test to the small bank CRA examination in tandem with an increase in the small bank threshold, we suggest a graduated approach under which a new and separate criterion applies separately only to banks over $500 million. Banks which are now between $500 million and $1 billion are presently equipped and staffed for CRA compliance under the large bank standards and could adjust to this new approach to the small bank examination standards while still obtaining substantial regulatory burden relief. Additionally, the imposition of an intermediate level of CRA burden on community banks over $500 million would leave the same percentage of bank assets subject to full CRA burden as existed when the regulations were last revised about ten years ago.

In summary, NDBA applauds the decision by FDIC to reconsider the small bank threshold and its recognition that CRA regulations are responsible for a significant and counter productive regulatory burden on North Dakota’s community banks. We also are thrilled that our banks now have an opportunity to receive relief from regulatory burden similar to that which the OTS has already provided to thrift associations. In this endeavor to give meaningful regulatory relief to community banks, we urge the FDIC to base its decisions on the facts as they relate to FDIC regulated community banks, not urban mega-banks. Substantial regulatory relief to North Dakota’s banks will directly benefit our communities and their banks and should be boldly implemented without delay.

Thank you for consideration of our comments on this important initiative.

Sincerely Yours,
North Dakota Bankers Association
James Schlosser

Marilyn Foss
Executive Vice President General Counsel

120 North Third Street, Suite 200  PO Box 1438  Bismarck ND 58502-1438
Telephone (701) 223-5303  Fax: (701) 258-0218  Email: ndba@ndba.com

Last Updated 09/22/2004 regs@fdic.gov

Last Updated: August 4, 2024