First State Bank & Trust
September 17, 2004
Mr. Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Re: RIN Number 3064-AC50: FDIC Proposed Increase in the Threshold
for the Small Bank CRA Streamlined Examination
Dear Sir:
I am Kent Needham
of First State Bank & Trust, located in Tonganoxie,
Kansas, a small but growing community of 3000. First State Bank & Trust
is $240 million in assets, and soon to be subject to the large bank
CRA exam. 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 understand that this is not an exemption
from CRA and that my bank would still have to help meet the credit
needs of its entire community and be evaluated by my regulator. However,
I believe that this would lower First State Bank & Trust’s
current regulatory burden.
I also support
the addition of a community development criterion to the small
bank examination
for larger community banks. It appears
to be a significant improvement over the investment test. However,
I urge the FDIC to adopt its original $500 million threshold 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. As FDIC examiners know, it has proven
extremely difficult for small banks, especially those in rural areas,
to find appropriate CRA qualified investments in their communities.
Many small banks have had to make regional or statewide investments
that are extremely unlikely to ever benefit the banks’ own
communities. That was certainly not intent of Congress when it enacted
CRA.
An additional
reason to support the FDIC’s CD criterion is
that it significantly reduces the current regulation’s “cliff
effect.” Today, when a small bank goes over $250 million, it
must completely reorganize its CRA program and begin a massive new
reporting, monitoring and investment program. If the FDIC adopts
its proposal, a state nonmember bank would move from the small bank
examination to an expanded but still streamlined small bank examination,
with the flexibility to mix Community Development loans, services
and investments to meet the new CD criterion. This would be far more
appropriate to the size of the bank, and far better than subjecting
the community bank to the same large bank examination that applies
to $1 trillion banks. This more graduated transition to the large
bank examination is a significant improvement over the current regulation.
I strongly oppose
making the CD criterion 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’s
overall lending in its community. The addition of a category of CD
lending (and services to aid lending and investments as a substitute
for lending) fits well within the concept of serving the whole community.
A separate test would create an additional CD obligation and regulatory
burden that would erode the benefit of the streamlined exam.
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.
I think that this change in the definition will go a long way toward
eliminating the current distortions in the regulation. We caution
the FDIC to provide a definition of “rural” that will
not be subject to misuse to favor just affluent residents of rural
areas.
In conclusion, I believe that the FDIC has proposed a major improvement
in the CRA regulations, one that much more closely aligns the regulations
with the Community Reinvestment Act itself, and I urge the FDIC to
adopt its proposal, with the recommendations above. I will be happy
to discuss these issues further with you, if that would be helpful.
Respectfully,
L. Kent Needham
President & CEO
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