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Federal Register Publications

FDIC Federal Register Citations



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FDIC Federal Register Citations

COMMUNITY REINVESTMENT ASSOCIATION of NORTH CAROLINA

September 21, 2004

Mr. Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th St., NW
Washington, DC 20429

RE: RIN 3064-AC50

Dear Mr. Feldman:

The Community Reinvestment Association of North Carolina (CRA-NC) submits comments regarding the proposed changes to the Community Reinvestment Act (CRA) regulations. CRA has been instrumental in increasing access to homeownership, boosting economic development, and expanding small businesses in minority and low- and moderate-income communities. The proposed changes will negatively affect the very communities that CRA intended to help. We therefore urge the FDIC to withdraw the proposed changes.

The purpose of CRA, is not to simply prohibit redlining, but to increase the lending, investments and services into all communities by all banks. CRA has been successful in increasing lending to minority and low- and moderate-income communities, which were historically underserved by banks, while also being profitable for the banks. The FDIC's proposal to increase the small bank size limit to $1 billion for CRA. exams is a change that undermines the law's purpose, effectiveness, and ultimately, the dollars reaching low-income communities.

Nationwide, the proposed changes to raise the large bank threshold from $250 million to $1 billion would affect 879 banks with more than $392 billion in assets. In North Carolina, the proposed changes would affect 25 banks with 312 branches in the state. Collectively, those banks hold nearly $13.9 billion in assets, making them the sixth largest bank in the state. If the large bank threshold is raised, these banks would have less incentive to take an active role in community development.

Currently, 72 FDIC regulated North Carolina chartered banks have less than $1 billion in assets, representing nearly 95% of all FDIC regulated banks in the state. The current small bank exam is extremely limited. Increasing the number of banks that fall into the small bank category will harm community development, particularly in rural areas where small banks are important in economic development.

• Small banks are examined approximately once every five years, meaning that more banks would be examined less frequently.
• Evaluation of lending performance often relies on one aspect of lending. For example, a small bank exam can include an analysis of only consumer loans or only business loans.
• Regulators are not required (though they are allowed) to compare the institution to other lenders in assessment area, even when there is low loan penetration in a particular geography. However, comparison to the market is essential in determining performance.
• There is no detailed analysis of community development lending or activities. Small banks can provide leadership and capital to community development. They shouldn't be exempt from this responsibility.
• There is no evaluation of the credit needs or opportunities in the small bank's assessment area, which limits understanding of the context of the bank's lending.

Current CRA regulations require that large banks with assets of at least $250 million be evaluated according to their level of lending, investments, and services to low- and moderate-income communities. Banks with less than $250 million in assets are held to a much lower standard and evaluated much less frequently. The proposed changes will eliminate the investment and service parts of the CRA exam for mid-size, nonmember state-chartered banks with assets between $250 million and $1 billion. Its place of the investment dad services tests, the FDIC proposes to add a community development criterion. The community development criterion would allow mid-size banks to choose one of three activities: community development lending, investing, or services. CurrentIy, mid-size banks must engage in all three activities.

The proposed community development criterion is deficient in assuring that banks are meeting the needs of their entire community. It will result in fewer loans and investments in affordable rental housing, low-income housing tax credit projects, community service facilities, and economic development projects. The community development criterion will allow mid-size banks' to demonstrate compliance by making a few grants or sponsoring homeownership fairs rather than engaging in a comprehensive effort to provide community development loans, investments, and services. CRA should encourage banks to be engaged in authentic community development.

The elimination of the service test will result in fewer branches in low- and moderate-income areas. Mid-size banks will no loner be expected to build bank branches in low income communities and will no longer make sustained efforts to provide affordable banking services and checking and savings accounts to consumers with modest incomes.

In addition, the proposed elimination of the small business lending data reporting requirement for mid-size banks will be harmful to communities. Mid-size banks will no longer be required to report small business data by census tracts or by the revenue size of the small business borrowers. Without data on lending to small businesses, it will be impossible to hold mid-size banks accountable for responding to the credit needs of small businesses. Disclosure has increased access to credit for small businesses because it allows communities to hold banks accountable for their performance. The FDIC proposal would reduce access to credit — a step backwards.

The FDIC proposal that community development activities in rural areas can benefit any group of individuals instead of only low- and moderate-income individuals is unconscionable. In rural areas, banks should be engines of economic and community development. It does not make sense to take away an incentive for banks to be engaged in work that benefits low- and moderate income individuals and communities. The FDIC proposal threatens to divert community development activities away from low-income communities to activities that benefit affluent individuals and communities. Banks should not receive CRA, credit for activities like building private golf courses or expensive homes in rural areas. The FDIC's proposal for mid-size banks will result in less community development in rural areas.

The FDIC's proposal is antithetical to CRA's statutory mandate of imposing a. continuing and affirmative obligation to meet community needs. It will dramatically reduce community development lending, investing, and services. It will harm communities and limit economic development, particularly in rural areas. Rather than weaken CRA., the FDIC should strengthen it by increasing requirements for community development and data reporting. Allow CRA to do what it was intended to do -. benefit the community.

Sincerely,
Peter Skillern Executive Director
Community Reinvestment Association of North Carolina
114 West Parrish St
Durham, NC 27702

Last Updated 10/04/2004 regs@fdic.gov

Last Updated: August 4, 2024