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FDIC Federal Register Citations

Center for Rural Affairs

From: Bailey, Jon [mailto:Jonb@cfra.org]
Sent: Monday, September 20, 2004 10:21 AM
To: Comments
Subject: RIN 3064-XXXX; RIN 3064-AC50

The Center for Rural Affairs urges the FDIC to withdraw its ill-conceived proposals to modify Community Reinvestment Act (CRA).

Established in 1973, the Center for Rural Affairs is a private, non-profit organization headquartered in Lyons, Nebraska, and works to strengthen small businesses, family farms and ranches, and rural communities through action oriented programs addressing social, economic, and environmental issues.

CRA has been instrumental in increasing homeownership, boosting economic development, and expanding small businesses in the nation’s rural communities. Your proposal would dramatically diminish banks’ obligation to reinvest in their communities. It revises the CRA rules to make the less rigorous CRA exam applicable to an additional 900 banks with assets of $401 billion. Adoption of the FDIC measure is likely to mean the loss of hundreds of millions of dollars in loans, investments, and services for rural communities and would disproportionately impact rural areas and small cities where the market presence of these mid-sized banks is often great.

FDIC rulemaking on this matter is badly flawed both in terms of procedure and substance. The proposal was adopted on a divided vote at a board meeting that was called on unusually short notice, and that provided some board members with only limited opportunity for prior review. The board provided a minimal 30-day public comment period. This comment period is unusually and unnecessarily brief for consideration of such a controversial rule and began during a traditional summer vacation month. Further, at least one of the board members (OTS Director Gilleran) has evidenced a lack of interest and concern for encouraging public input by seeking at the board meeting to condition his vote upon a guarantee that another meeting to finalize the rule would be held only one month after the close of the public comment period. All of these actions suggest to us the FDIC board majority is merely going through the motions before finalizing the proposed rules.

The FDIC rule, as proposed, would greatly weaken or eliminate extremely important standards necessary to ensure that CRA works for rural communities. The proposed change would weaken the lending test and also eliminate the investment and service parts of the CRA exam for FDIC supervised banks that have assets between $250 million and $1 billion.

The FDIC plan to add a community development criterion in lieu of the more precise investment and service tests applicable today (that collectively count for 50 percent of a bank’s CRA grade) is a wholly inadequate substitute for the present exam standards. The new factor permits these banks to satisfy the community development criterion by choosing whether to provide community development loans, investments or services instead of assessing their performances for all three categories, as is currently required. This change is likely to result in a significant drop-off of lending, investments and services for affordable housing development, Low Income Housing Tax Credits, and economic development projects.


Another harmful element in your proposal is the dramatic weakening of the lending test for midsized banks which could decrease access to credit for many Americans. Under your proposal banks with assets between $250 million and $1 billion assets will no longer be required to collect and report essential lending information such as small business lending by census tracts or revenue size of the small business borrowers. Without data on lending to small businesses, it is impossible for the public to hold the mid-size banks accountable for meeting the credit needs of minority-owned, women-owned, and other small businesses. Such data collection and the requirements of CRA concerning small business are vital to rural communities. Our research shows that nearly 70 percent of all recent job growth in rural communities of the Great Plains (Iowa, Kansas, Minnesota, Nebraska, North Dakota and South Dakota) is from non-farm small business and self-employment. In Nebraska, our research has shown that over one-third of the jobs in rural counties are from small business with five or fewer employees. Small businesses are vital to the economic viability and the future of rural communities. Without CRA requirements to provide capital small businesses and low- and moderate-income entrepreneurs in rural areas, and without the data to hold banks accountable, the future of many rural communities is bleak.

According to the FDIC data, the rule change would mean that only 223 of 5,291 (4 percent) of all FDIC-supervised banks would continue to receive the full CRA exam. It would affect some parts of the U.S. more drastically than others. Ninety-nine percent of rural FDIC-supervised banks would be exempted from full coverage. It also appears that no banks in eight states (Alaska, Arizona, Idaho, Minnesota, Montana, New Mexico, West Virginia and Wyoming) would be fully covered by CRA. Thirty-six other states would have five or fewer banks facing full CRA scrutiny. Further, this proposal would broaden the definition community development so that midsize banks could receive CRA “credit” even if these activities are not particularly directed at serving the needs of low- and moderate-income households, as is presently required

The FDIC proposal and the rule recently adopted by the OTS proposal water down the CRA requirements for midsize banks and are contrary to the Act’s statutory mandate. As you know, this mandate requires that banks, regardless of their asset size, have a continuing and affirmative obligation to serve the credit and deposit services needs of their local communities, including low- and moderate-income areas. This statutory mandate has served rural communities well. The FDIC proposal and the rule adopted by the OTS will not. Rural communities face many challenges for their economic and community development. Your proposed rule removes another tool in the development toolkit that rural communities cannot afford to lose.

We urge you to withdraw this ill-conceived proposal.

Jon M. Bailey
Director, Rural Research and Analysis Program
Center for Rural Affairs
P. O. Box 136
Lyons, NE

 

 


Last Updated 11/22/2004 regs@fdic.gov

Last Updated: August 4, 2024