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FDIC Federal Register Citations


GREATER ROCHESTER REINVESTMENT COALITION


September 28, 2004

Mr. Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th St. NW 20429
Via email: comments@fdic.gov

RE: RIN 3064-AC50

Dear Mr. Feldman:

As a member of the National Community Reinvestment Coalition, the Greater Rochester Reinvestment Coalition (GRCRC) urges you to withdraw your proposed changes to the Community Reinvestment Act (CRA) regulations.

GRCRC was convened in 1993 to generate discussion about the lending patterns in Rochester, NY. Since then, the Coalition has released seven analyses of home mortgage, small business and subprime lending data. We have used the analyses to identify strengths and weaknesses in lending patterns and to generate ongoing discussion with the banks in question. The Coalition also submits comments, based on the data, to the appropriate State and Federal regulators who have oversight of the banks.

GRCRC has a membership of over 30 locally based not-for profits and individuals. GRCRC monitors the community reinvestment lending of Bank of America, JPMorgan Chase, Citigroup, Canandaigua National Bank, M&T Bank, HSBC and Charter One.

CRA has been instrumental in increasing homeownership, boosting economic development, and expanding small businesses in the nation’s minority, immigrant, and low- and moderate-income communities including those in the Rochester, NY metropolitan areas. Your proposed changes are contrary to the CRA statute and Congress’ intent because they will slow down, if not halt, the progress made in community reinvestment.

The proposed changes will thwart the Administration’s goals of improving the economic status of immigrants and creating 5.5 million new minority homeowners by the end of the decade. Since FDIC Chairman Powell, a Bush Administration appointee, is proposing the changes, the sincerity of the Administration’s commitment to expanding homeownership and economic development is called into question. How can an administration hope to promote community revitalization and wealth building when it proposes to dramatically diminish banks’ obligations to reinvest in their communities?

Under the current CRA regulations, banks with assets of at least $250 million are rated by performance evaluations that scrutinize their level of lending, investing, and services to low- and moderate-income communities. The proposed changes will eliminate the investment and service parts of the CRA exam for state-charted banks with assets between $250 million and $1 billion. In place of the investment and service parts of the CRA exam, the FDIC proposes to add a community development criterion. The community development criterion would require banks to offer community development loans, investments or services. Banks eligible for the FDIC proposal with assets between $250 million and $1 billion have 7,860 branches. All banks regulated by the FDIC with assets under $1 billion have 18,811 branches. Your proposal leaves banks with thousands of branches “off the hook” for placing any branches in low- and moderate-income communities.

The community development criterion would be seriously deficient as a replacement for the investment and service tests. Mid-size banks with assets between $250 million and $1 billion would only have to engage in one of three activities: community development lending, investing or services. Currently, mid-size banks must engage in all three activities. Under your proposal, a mid-size bank would choose a community development activity that is easiest for the bank instead of providing an array of comprehensive community development activities needed by low- and moderate-income communities.

The proposed community development criterion will result in significantly fewer loans and investments in affordable rental housing, Low-Income Housing Tax Credits, community service facilities such as health clinics, and economic development projects. It will be too easy for a mid-size bank to demonstrate compliance with a community development criterion by spreading around a few grants or sponsoring a few homeownership fairs rather than engaging in a comprehensive effort to provide community development loans, investments, and services.

Your proposal would make 879 state-chartered banks with over $392 billion in assets eligible for the streamlined and cursory exam. In total, 95.7 percent or more than 5,000 of the state-charted banks your agency regulates have less than $1 billion in assets. These 5,000 banks have combined assets of more than $754 billion. The combined assets of these banks rival that of the largest banks in the United States, including Bank of America and JP Morgan Chase. Your proposal will drastically reduce, by hundreds of billions of dollars, the bank assets available for community development lending, investing, and services.

The elimination of the service test will also have harmful consequences for low- and moderate-income communities. CRA examiners will no longer expect mid-size banks to maintain and/or build bank branches in low- and moderate-income communities. Mid-size banks will no longer make sustained efforts to provide affordable banking services, and checking and savings accounts to consumers with modest incomes. Mid-size banks will also not respond to the needs for the growing demand for services needed by immigrants such as low cost remittances overseas.

One of the FDIC banks affected by the CRA regulation is the Bank of Castile, a bank operating in upstate NY, including the Rochester, NY MSA. It received a Satisfactory rating in its last CRA exam.

In 2003, the Bank of Castile made a total of 358 1-4 family unit mortgage loans in the Rochester, NY MSA totaling $26 million. The Bank of Castile’s total lending marketshare was 0.7 percent in the MSA. In comparison, Bank of Castile’s marketshare was

• 0.2 percent in the city, 0.5 percent less than its MSA marketshare;

• 0.3 percent among African-American and Hispanic households, 0.4 percent less than its MSA marketshare;

• 0.7 percent among low-moderate income households, the same as its MSA marketshare;

• 0.5 percent among low-moderate income census tracts, 0.2 percent less than its MSA marketshare.

All Financial Institutions (AFIs) made 29 percent of their loans to low-moderate income households, while the Bank of Castile made 30 percent of its loans to low-moderate income households.

In 2003, the Bank of Castile made a total of 87 1-4 family unit (owner-occupied) home purchase loans in the Rochester MSA totaling $8 million. The Bank of Castile’s home purchase marketshare was 0.6 percent in the MSA. In comparison, the Bank of Castile’s marketshare was

• 0.1 percent in the city, 0.5 percent less than its MSA marketshare;

• 0.1 percent among African-American and Hispanic households, 0.5 percent less than its MSA marketshare;

• 0.6 percent among low-moderate income households, the same as its MSA marketshare;

• 0.4 percent among low-moderate income census tracts, 0.2 percent less than its MSA marketshare.

AFIs made 38 percent of their loans to low-moderate income households, while the Bank of Castile made 39 percent of its loans to low-moderate income households.

In 2003, The Bank of Castile made a total of 56 small business loans totaling $10 million. Of these 56 loans, 84 percent were given to businesses with gross annual revenues less than or equal to $1 million.

In its 2002 CRA performance evaluation, the Bank of Castile’s overall performance was satisfactory, with a high satisfactory in the lending and service tests and a low satisfactory in the investment test. Community development lending, investments and grants were described as adequate. Given that the bank is adequately meeting the needs of its marketplace it would be a travesty to change the threshold and make the exam even easier, resulting in community credit needs being unmet.

The Bank has in fact entered into partnerships with Rochester area not for profits to improve its lending penetration. In addition, it has participated in community development lending demonstrating that it is possible to perform on the existing bank exams.

The Bank of Castile has created a program for area non-profits called Community One. Features of this program include no Private Mortgage Insurance (PMI), $1,000 down payment, no Combined Loan To Value caps, no application fee, and reduced appraisal and bank attorney fees. The interest rate is slightly lower than market rate. Loans can be combined with the First Home Club and/or other grants. Households participating in the First Home Club receive an additional $200 credit at closing. Households with 12 months of timely payments receive another $100.

Seven depository institutions with assets over $1 billion include the Rochester MSA in their assessment area. In addition, many large lenders and credit unions are active in the mortgage market. Nevertheless, a GRCRC member illustrated the importance of the Bank of Castile’s role in meeting credit needs. Bank of Castile assisted a single mother of two children from Batavia by providing her with a mortgage loan. Ms. A had some funds for down payment assistance but not quite enough. She also had a good credit history and a low debt load. However, her income did not qualify her for a USDA Rural Development loan with a subsidy on the rate. Nor was her income quite high enough to qualify her for a conventional loan due to PMI and larger down payment requirements.

Ms. A fit perfectly into the Bank of Castile Community One loan. She was able to receive a grant for some down payment and closing costs and up to $6000 to have minor rehab done on the house after purchase. The Bank of Castile is one of few banks that will accept this grant despite the fact that the rehab money drives up the total loan to value ratio. The no PMI helped her buy more of a home instead of about $45.00 per month going to PMI. Without Community One, Ms. A would not have been able to purchase the home she felt suited her needs. The current CRA regulations provide the incentive for banks like Castile to develop innovative and fiscally responsible products like Community One that help low-moderate income people.

In order to further understand the potential impact of the FDIC’s proposal on community development activities in New York State, an analysis of FDIC 2004 Statistics on Depository Institutions data was conducted for institutions active in 2004 in the state of New York. This analysis indicates that by changing the FDIC “small” bank threshold (See Table A):

• The number of “large” FDIC regulated institutions active in New York State would decline by 55 percent and the number of “small” institutions would increase by 76 percent

• These “small” banks would make up 74 percent of FDIC regulated institutions state-wide, substantially more than the current 42 percent

• These “small” banks would control over $16.6 billion in assets, a 364 percent increase from what the current “small” banks control

• In urban areas, the number of “large” FDIC regulated institutions would decline by 51 percent so that over 72 percent of FDIC institutions would be “small” banks

• In rural areas, the number of “large” FDIC regulated institutions would decline by 75 percent to the point where over 86 percent would be “small” banks

As the above analysis shows, FDIC banks with between $250 million and $1 billion in assets have a strong presence in New York LMI and rural communities. These institutions have contributed significant levels of community development lending and have originated a considerable number of small business loans. The FDIC’s proposal to shift these banks to “small” status would threaten CRA activities and deliver a devastating blow to community development efforts statewide.

Another destructive element in your proposal is the elimination of the small business lending data reporting requirement for mid-size banks. Mid-size banks with assets between $250 million and $1 billion will no longer be required to report 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 at large to hold the mid-size banks accountable for responding to the credit needs of minority-owned, women-owned, and other small businesses. Data disclosure has been responsible for increasing access to credit precisely because disclosure holds banks accountable. Your proposal will decrease access to credit for small businesses, which is directly contrary to CRA’s goals.

Lastly, to make matters worse, you propose that community development activities in rural areas can benefit any group of individuals instead of only low- and moderate-income individuals. Since banks will be able to focus on affluent residents of rural areas, your proposal threatens to divert community development activities away from the low- and moderate-income communities and consumers that CRA targets. Your proposal for rural America merely exacerbates the harm of your proposed streamlined exam for mid-size banks. Your streamlined exam will result in much less community development activity. In rural America, that reduced amount of community development activity would earn CRA points if it benefits affluent consumers and communities. What’s left over for low- and moderate-income rural residents are the crumbs of a shrinking CRA pie of community development activity.

In sum, your proposal is directly the opposite of CRA’s statutory mandate of imposing a continuing and affirmative obligation to meet community needs. Your proposal will dramatically reduce community development lending, investing, and services. You compound the damage of your proposal in rural areas, which are least able to afford reductions in credit and capital. You also eliminate critical data on small business lending. Two other regulatory agencies, the Federal Reserve Board and the Office of the Comptroller of the Currency, did not embark upon the path you are taking because they recognized the harm it would cause.

If your agency was serious about CRA’s continuing and affirmative obligation to meet credit needs, you would be proposing additional community development and data reporting requirements for more banks instead of reducing existing obligations. A mandate of affirmative and continuing obligations implies expanding and enlarging community reinvestment, not significantly reducing the level of community reinvestment.

CRA is too vital to be gutted by regulatory fiat and neglect. If you do not reverse your proposed course of action, we will ask that Congress halt your efforts before the damage is done.

Yours truly,

Ruhi Maker, Esq.

 


 

Last Updated 10/05/2004 regs@fdic.gov

Last Updated: August 4, 2024