In Narrow Vote, FDIC Issues CRA Reporting Threshold Proposal for Comment

WASHINGTON-Following a narrow 3-2 vote, the Federal Deposit Insurance Corporation Board announced a proposed regulation seeking additional comment on whether it should increase the “small institution” threshold under the Community Reinvestment Act from $250 million in assets to $1 billion. Currently, banks and thrifts under $250 million must only comply with a streamlined version of the CRA examination. The Office of Thrift Supervision recently approved a final rule raising the threshold for the thrifts it regulates to $1 billion. The rule also eliminated the restriction on small thrifts affiliated with holding companies of a combined total of over $1 billion in assets being eligible for the streamlined examination. OTS emphasized in announcing the modifications, “The final rule does not, however, relieve small savings associations of all other existing and ongoing compliance requirements and legal obligations under the CRA.” OTS’ rule takes effect Oct. 1. The four banking regulators-credit unions are not subject to CRA-issued a proposal for comment in February that would increase the threshold to $500 million, but the banking industry has pushed hard to increase that to $1 billion and has apparently been partially successful. The Office of the Comptroller of the Currency, headed by President Bill Clinton-appointee John D. Hawke, has refused to follow suit. The OCC signed onto the joint proposed rulemaking earlier this year, but Hawke, an FDIC Board member, accounted for one of the dissenting votes in this latest proposed regulation. His term as comptroller ends this year. While acknowledging the burden CRA brings to smaller institutions, Hawke stated, “The OCC recognizes the substantial paperwork and regulatory burden on community banks from the Community Reinvestment Act regulations. The compliance costs associated with the CRA can be a significant drain on resources for those community banks that do not qualify for streamlined CRA examinations. “At the same time, the OCC also recognizes that simply making substantial numbers of additional banks eligible for streamlined CRA examinations, without due regard for the impact on community development capital needs at the local level, could have a detrimental impact on the goals of CRA.” But the FDIC’s proposal is different from the OTS’ in that it requests public comment on whether an additional community development test should be completed, in addition to the lending test, for institutions between $250 million and $1 billion in assets. FDIC’s proposal would also expand the definition of community development to include a broader range of activities in rural areas. Currently, the large bank CRA exams have three components: lending, investment, and community service. This did not satisfy Hawke. “It is possible to achieve meaningful reductions in regulatory burdens on community banks arising from the CRA regulations and to preserve meaningful CRA activities by these banks. If the right balance is found, both these objectives can be achieved with changes to the CRA regulations and examination procedures. “The OCC remains committed to exploring means of relieving the regulatory burdens on community banks while supporting community reinvestment by these banks. We will continue to work on an interagency basis with the FDIC and the Federal Reserve Board to develop uniform standards for the banking industry consistent with these goals.” The National Community Reinvestment Coalition also aligned itself against the OTS’ action. “NCRC is dismayed that OTS Director James Gilleran acted independently of other bank regulators in issuing this final rule. With this rule, Gilleran also preempts existing Congressional efforts to define small banks and goes way beyond the initial proposal of the four regulatory agencies. He has unilaterally decided to change the threshold by threefold, despite public opposition to increasing the threshold twofold. I’d like to know under what authority Gilleran is operating under with this action,” NCRC President and CEO John Taylor stated. Taylor continued, “The result is billions of dollars of lost investments, thousands of fewer loans, and a new era of redlining.” On the other hand, the banking industry is applauding the OTS and FDIC’s efforts. Following the FDIC’s proposal out for comment, the American Bankers Association Executive Vice President Edward L. Yingling explained, “Because the threshold has been raised, approximately 900 banks would be able to more effectively and efficiently allocate limited resources to programs such as anti-money laundering. The increase would also more closely align CRA regulations with what banking agencies originally designed when they adopted the small bank test eight years ago.” He also vowed to continue to try to sway the OCC and Federal Reserve to a similar point of view. The proposed amendment “reflects the FDIC’s desire to strike a balanced approach toward reasonable and rational regulation,” America’s Community Bankers Executive Vice President and Managing Director of Government Relations Robert R. Davis said. “We hope this proposal will provide momentum to allow community banks across the nation to actively meet the needs of their customers and communities while doing so in a cost effective and competitive fashion.” And, the Independent Community Bankers of America added that the streamlined CRA examination is “mischaracterized” as an exemption. “That is simply wrong,” ICBA President and CEO Camden Fine said. “These individuals also complain about losing access to local decision-makers when community banks are taken over by larger banks-yet they want to keep in place requirements that unnecessarily add to community banks’ regulatory burden, making it more difficult for them to remain independent and provide a competitive alternative for consumers and small businesses.” The credit union trade associations have said that CRA is a useful tool to measure banks’ efforts to serve low-income areas. NAFCU Communications Manager John Zimmerman explained, “NAFCU has emphasized all year, including most recently by President and CEO Fred Becker at the Annual Conference in Vancouver, that there are two important things to remember about CRA.” One: banks were found to be redlining, which prompted the legislation. Secondly, Zimmerman reasoned, if the law is outdated, it is disingenuous for the banking industry to ask Congress to apply it to credit unions. In a comment letter to the FDIC from CUNA during the earlier comment period this year, the lobby group stated that CRA has had a positive impact. “A rational individual would expect that, should the banks get some relief from CRA requirements (in terms of the proposed threshold), they would be satisfied that the `competitive edge’ they claim credit unions have in this area would have finally been erased,” CUNA Vice President of Communications and Media Outreach Pat Keefe said. “However, since we all know that banks have been less than rational, our expectations are not that high, either.” [email protected]