Katahdin Trust Company
September 20, 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 Mr. Feldman:
I am Senior Vice President of Marketing at Katahdin Trust Company,
headquartered in Patten, Maine, and a community of less than 5,000
residents.
My bank has $330
million in assets and is subject to a 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 significantly lower our 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.
Sincerely,
Vicki J. Smith
Senior Vice President
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