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FDIC Federal Register Citations



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FDIC Federal Register Citations


From: Roberson, Robert E.
Sent: Monday, August 23, 2004 8:27 PM
To: Comments
Subject: RIN #3064-AC50

The conclusion of the proposal states: “…the proposal is intended to improve the effectiveness of CRA evaluations by permitting banks to focus on community development activities based on the opportunities in the market and the needs of the community, including low- and moderate-income areas; address particular concerns relating to investments and services provided to rural communities; and update the regulation to take account of economic changes in the industry.”

Currently “large” banks have to meet the investment and services tests. Banks that achieve good ratings in these areas already focus on community development activities in their markets and the needs of their communities. The proposal will add a “mandatory community development performance criterion” for banks between $250 million and $1 billion in assets. This criterion is already in place for banks of this size. The effective change in the proprosal is not adding a community development criterion, it is dropping the data collection requirement for small business and small farm loans. Dropping the data collection requirement will be counter to the stated intention of improving the effectiveness of CRA evaluations. The only effective tool for evaluating a bank’s performance in lending to small businesses and small farms is the comparison to other lenders through the aggregate data collection. Reducing the number of banks that report this data will reduce the effectiveness of all CRA evaluations including those from other agencies.

Changing the definition of “community development” to individuals who reside in rural areas will, in many cases, broaden the definition to the point that many middle- and upper-income individuals will be included. If this happens, then banks will have less incentive to lend to low- and moderate-income borrowers since the $500,000 home loan to a doctor living in a ‘rural’ area will be easier to make and service than the 20 $25,000 home loans to low- or moderate-income borrowers that typically have some credit weaknesses.

The CRA evaluation guidelines state that if there are no qualified community investment opportunities available for a bank in its assessment area, then that bank is automatically rated “Low Satisfactory” in that test. “Large” banks in rural areas may meet this criterion. There is no criterion for banks to maintain additional staff and expend resources in order to make qualified community investments. It is true that “large” banks as currently defined may not have the staff and resources to compete for all types of qualified community investments; however, it is not true that “large” banks cannot find qualified community investments in sufficient quantities to qualify for at least a “Low Satisfactory” unless they do not look around.

The argument that the regulation needs to be updated based on the economic changes in the industry does not really hold water. Inflation since 1995 has not caused the number of banks supervised by FDIC with assets of $250 million or more to increase from 10.6 percent to 20.9 percent. The bursting of the stock market bubble saw a large movement of funds from mutual funds and stocks back to banks. Historically low rates have caused a boom in the housing market and many banks have used these available funds to increase their loan portfolios rather than invest in bonds with lower yields. Bank consolidation since 1995 also increased the size of banks.

Robert E. Roberson
13028 N. Circle 8 Drive
Okawville, Illinois 62271

 



Last Updated 08/25/2004 regs@fdic.gov

Last Updated: August 4, 2024