To the Editor:
As the compliance officer for a bank holding company with three banks between $250 million and $500 million, I have read with considerable interest and growing concern the banking regulators' latest proposal to revise CRA.
My concern is easily expressed: Where is the regulatory-burden relief for these three banks?
The banking regulators originally proposed simply raising the threshold for a small bank from $250 million to $500 million, without regard to the size of the bank holding company. This would have been major relief.
These banks would no longer have been examined as a large bank, with the data reporting and the three separate tests, but rather as a small bank, under the streamlined examination process that focuses upon whether they were lending in their community, as the statute requires.
However, though the new proposal would raise the threshold for a "small bank" examination up to $1 billion in assets, it would add a new community-development test that would be separately rated in CRA examinations for banks between $250 million and $1 billion ("intermediate small banks").
Therefore, these banks would then be rated on the streamlined small-bank lending test and on community-development lending, services, and investments.
Thus the new proposal retains the most problematic elements of the large-bank examination: finding, making, and documenting narrowly defined community-development lending, services, and investments in small, rural communities. These have posed the greatest problems for small banks trying to comply with the large-bank examination.
Even worse, the proposal would require these banks to get a "satisfactory" on the community-development test, no matter how well they were helping to meet the credit needs of their communities. As it now stands, not even the large-bank test requires a "satisfactory" on the investment test for a "satisfactory" CRA rating.
It is true that the proposal would expand the definition of "community development" to include affordable housing for individuals in underserved rural areas and designated disaster areas; and community development activities that revitalize or stabilize underserved rural areas and designated disaster areas.
But the proposal does not define "rural" or "underserved," and some of the suggested definitions appear to require considerable documentation before examiners would accept them as qualifying for CRA credit.
The proposal drops the burden of CRA loan reporting, but for our banks that have already set up our data collection and reporting system, this is a marginal decrease in regulatory burden, but not a major decrease.
Thus the new proposal appears to be much more burdensome than just being allowed to use the streamlined examination for small banks, and it might even be more burdensome than just remaining a "large bank."
At least if these midsize banks were to remain large banks, for this purpose, we already have our CRA compliance system in place. If the banks become "intermediate" small banks, the process with which we operate, in regard to CRA, would have to be adjusted to a new and different examination procedure. We would need to learn a new set of definitions and documentation requirements, as would our examiners.
We believe that these changes would lead to extended uncertainty and confusion and indirectly adversely affect the customer base, which the CRA regulation is intended to help.
Our banks track their record of community involvement, which is considerable. However, to satisfy their current large-bank investment test, these banks can receive investment credit only for dollars they donate to nonprofit organizations, whose number is limited, to support community-development activities. In most performance evaluations, even the examiners have noted that there are "limited local qualified investments" to meet the investment test.
The banking regulators' original proposal offered the promise of real relief and made real sense. After all, in 1995, when the current rule was adopted, banks under $250 million held only 14% of all banking assets; today banks under $500 million hold less than 11%, and all banks under $1 billion hold only 14%.
Creating a whole new additional CRA exam for banks between $250 million and $1 billion just does not seem to me to be relieving regulatory burden or correcting the ills of the CRA regulations.
