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FDIC Federal Register Citations
Little River
Band of Ottawa Indians
October 20,
2004
Mr. Robert E. Feldman, Executive Secretary
Att: Comments/Legal ESS, Federal Deposit Insurance Corporation
via: comments@FDIC.gov
RIN number 3064-AC50 - Regulatory Changes to the Community Reinvestment
Act
Dear Mr. Feldman,
The Little River Band of Ottawa Indians is a federally recognized Tribe
located on the eastern shores of Lake Michigan, in the middle of the
lower Michigan. We are surrounded by water on one side, and federal forests
on the other. We have in excess of 3000 members who rely on the Tribal
Council to make long term governmental decisions to provide housing opportunities
and support economic benefits through employment and business development.
We have been advised of the proposed changes to the Community Reinvestment
Act regulations (CRA) by the Federal Deposit Insurance Corporation (FDIC)
and we are enclosing the following comments on behalf of the Little River
Band of Ottawa Indians (the Tribe).
The CRA was adopted by Congress to ‘encourage’ banks to become
a part of the community by serving all the needs of the community, not
just those that are profitable. A bank, as part of a community, is an
institution that can help create growth in the economy, which fosters
better wages, which fosters better housing and living conditions through
lending programs. These programs are in part, generated through low– and
moderate– housing mortgage programs, and in part through lending
through small business development programs implemented through banks
under federal, Tribal, and state programs.
A large percent of our Tribal members are of low–and moderate– income
who have set high hopes on the opportunities the CRA offers to communities
like ours. Of special interest to us has been the great opportunity to
take advantage of the Low Income Housing Tax Credit program that will
bring to the community real possibilities to develop a housing solution
in partnership with our local lending institutions. Under the current
CRA regulations community banks have a clear incentive to develop such
partnerships.
The proposed changes remove any incentive for community banks to continue
seeking our partnership to develop programs such as the tax credit program
referred to above. Indeed, by redefining small banks by way of increasing
the threshold of their assets, the FDIC would empower these banks with
the ability to decide the activities they would favor to remain in compliance,
without regard of the needs of the community. While the current regulations
contain a streamlined test to rate small banks’ CRA compliance,
and continues the three-pronged test for large banks, the proposed regulation
increases the threshold of small banks’ assets. This makes community
banks testing for compliance similar to that of the current large banks,
but maintains the “old” streamlined test to measure their
CRA performance.
It is our belief that this change will lead to negative consequences.
Small banks have an incentive to comply. Regulations and the possibility
of merging with a larger institution represent a great incentive for
them to be in compliance and offer opportunities to low– and moderate– income
families. Once a bank has become part of a larger bank, that incentive
is not as powerful as it was before because they have achieved their
goal of increasing bank profits through mergers and the increase in the
number of bank customers.
If in addition, the CRA regulations allow them to “pick-and-choose” any
of the three activities to develop, there is no question that banks will
concentrate on activities that would be profitable at a minimum risk.
This would ultimately defeat the legislative purpose of the CRA, which
is to provide incentives to participate in the community as a whole,
in order to bring the entire community to a higher economic level.
Similarly, if banks are granted the freedom to choose between low–and
moderate– income risk and rural risk, there is no doubt that banks
will choose the rural risk. Rural risk is not tied to income level. Since
investing in a suburban development would qualify as a CRA activity under
the proposed regulations, I cannot see the reason why a bank would choose
to invest in low– and moderate– income housing projects.
The incentive is not there, and the proposed FDIC’s regulations
would allow community banks to escape the responsibilities they have
toward the entire community.
In addition, allowing banks the option to invest in ‘rural risk’ defeats
the purposes of the CRA. As stated above, the CRA is aimed at low– and
moderate– risk income activities. Rural risk activities have no
tie to income levels, and could avoid the low– or moderate–risk
exposure entirely.
The Tribe does not oppose a new definition of small banks by way of increasing
the threshold amount of assets regardless of holding company affiliation.
As long as the tests banks are subjected to inquiry about banking activities
in the areas of investments, lending and service to low–and moderate– income
activities, they will have a greater incentive to participate in that
community.
The Tribe is strongly opposed to having the banks decide which areas
of activity they can develop in order to comply with the CRA performance
requirements. A balance of involvement in the three identified areas
above is what we support. This balance of activity supports all levels
of the community, and ultimately raises the economic balance of the entire
community through housing and economic development.
Finally, the Tribe is concerned about adding to the group of individuals
to be served under CRA those banking activities of those living in rural
areas without an income limitation. The intention of the regulations
are already served without further introducing another classification
of possible individuals to be utilized by community banks to meet their
community responsibilities.
The purpose of the act is to serve low– and moderate– income
individuals, whether they are located in urban or rural areas. If the
regulations introduce a new classification –individuals living
in rural areas– it is sending the message to the banks that they
will be CRA compliant if they meet the “rural” requirement
without regard of the income requirement. The ultimate result is that
banks are given back the“red pen” to draw new lines around
the demographic or geographic make-up of their communities, once again
leaving low– and moderate– income individuals without services.
In conclusion,
1) the Tribe supports changing the threshold of assets regardless of
holding company affiliation in the definition of small banks as one with
assets from $250,00 to $1 billion;
2) the Tribe opposes a streamlined test to measure their CRA performance,
supporting maintaining the three-pronged test, requiring a balance of
investment, lending and service activity within the community;
3) the Tribe opposes to banks having the power to choose between activities
they may favor the most; and,
4) the Tribe opposes adding to the category of individuals’ beneficiaries
of the CRA activities to any rural resident, and advocates for maintaining
as the beneficiaries’ individuals of low– and moderate– income.
We are available for further discussion regarding these regulations if
you would find that helpful.
Sincerely,
Stephen Parsons, Speaker
Tribal Council
Little River Band of Ottawa Indians
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