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Federal Register Publications

FDIC Federal Register Citations



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FDIC Federal Register Citations

THE REINVESTMENT FUND

September 20, 2004

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

RE: MN 3064-AC50, 12 CDFR Part 345

Dear Mr. Feldman:

As a Pennsylvania-based community development financial institution (CDFI). The Reinvestment Fund urges you to withdraw your proposed changes to the Community Reinvestment Act (CRA) regulations.

Founded in 1985, The Reinvestment Fund (TRF) has grown to be one of the nation's largest and most effective community development financial institutions. TRF's primary service area encompasses a 21-county region in the states of Pennsylvania, New Jersey, and Delaware, with many of our financing programs extending well beyond this area to the mid Atlantic region at large. The primary mission of TRF is to build wealth and economic opportunity for low-wealth communities and low- and moderate-income individuals through the promotion of socially and environmentally responsible development. TRF combines market discipline with social purpose to apply the now more than $210 million in assets it manages. Since inception in 1985, TRF has created opportunity and choice for low-wealth communities and low- and moderate-income individuals in concrete and measurable ways. During the past 3 years, TRF has:

• created, renovated, or preserved over 3,370 housing units,
• created or retained over 11,460 jobs,
• created, renovated, or preserved over 1.1 million square feet of commercial space,
• created or preserved over 8,330 charter school slots,
• created or preserved 1,550 child care slots,
• financed 178 businesses, including 21 woman- and 38 minority-owned businesses,
• conserved 2.5 million kWh in fiscal year 2003 alone,
• and created 32.9 million kWh of clean renewable energy.

The proposed rule change by the FDIC to offer "streamlined" testing under the Community Reinvestment Act will decrease the availability of private capital for community development. By weakening the regulatory incentive for banks to remain responsive to low-and moderate-income persons, TRF believes the ability of community organizations to provide affordable housing and community and economic development services will be adversely affected. TRF objects to the proposed revision that would change the definition of a "small bank" by raising the asset size threshold to $1 billion regardless of holding company affiliation.

By altering the definition of a "small bank," banks with $250 million to $1 billion in assets will no longer be held to current standards of community responsiveness. The CRA examination for large banks encourages community investment more strongly than the small bank examination, due largely to its focus on lending, investment, and service tests, in the calculation of a bank's CRA rating. Small bank performance under the CRA is subject to a "streamlined" process that focuses primarily on lending. The elimination of the investment and service test will remove crucial measures of community responsiveness from the CRA evaluation for the large number of banks within the asset range of $250 million to $1 billion.

While TRF acknowledges the addition of a community development activity criterion for these mid-size banks no longer subject to the large bank CRA examination, this test would not compensate for the absence of the investment and service tests for which these institutions were previously responsible. Allowing these newly-defined "small banks" to choose among "complex development lending, qualified investments, or community development services," in the assessment of their CRA rating will allow banks to focus on only one aspect of their responsibility to serve community credit needs, leaving gaps in financial services for low- and middle-income communities.

Since inception, TRF has received substantial funds from banks with assets greater than $250 million and up to $1 billion. To date, $10,700,000 of the capital TRF has used to provide services to underserved communities have come from these mid-size banks; representing 9 out of the 36 banks that invest wish TRF. While TRF has 900 investors in its investor network, bank investments represent 43% of the dollar amount of TRF's sources of funds. From this data, it is clear that banks contribute heavily to the capital TRF utilizes for community development work. Weakening CRA evaluation methods greatly affects the impact TRF is able to achieve in its mission to "build wealth and opportunity for low-wealth communities and low- and moderate-income individuals through the promotion of socially and environmentally responsible development."

The incentives provided by the current rating system, which push banks to respond to the credit needs of the communities in which they operate, are a driving force behind community development efforts. With a "streamlined evaluation method" for banks falling under the $250 million to $1 billion asset range, these incentives will decrease banks' responsiveness to the detriment of low- and moderate-income communities.

The strength of the Community Reinvestment Act comes from its large retail institution test comprised of the specific lending, investment, and service tests. The comprehensive nature of this method of evaluation is what encourages banks to remain responsive to the needs of low- and moderate-income individuals and communities. Through the incentives provided by the CRA, banks and community development financial institutions have formed strong partnerships to meet communities' credit needs throughout the country. Raising the threshold for "streamlined" testing under the CRA to banks up to $1 billion in assets will endanger these partnerships that have enabled CDFIs to leverage limited grants and government subsidies with private capital to meet communities' needs.

Sincerely,
Jeremy Nowak
President and CEO, The Reinvestment Fund

CC: Senator Arlen Specter
United States Senate, Pennsylvania
711 Hart Building
Washington, DC 20510

Senator Rick Santorum
United States Senate, Pennsylvania
Washington, DC 20510

Last Updated 10/08/2004 regs@fdic.gov

Last Updated: August 4, 2024