Anyone clarify what the following section of the new FDIC/OCC CRA proposal (which makes the large bank threshold at $1 billion) actually means:

An intermediate small bank would not receive an overall CRA rating of "satisfactory" unless it received a "satisfactory" rating on both the small bank lending test and the community development test

Well, if they ever make up their minds & issue a rule instead of another proposal, this would mean that banks between $250 million & $1 billion would have to pass a newly proposed 'community development test' with at least a satisfactory in order to achieve an overall satisfactory rating. Thus far, I've only skimmed the proposal - got a pesky little HMDA submission to complete...

It sure looks a lot like the OTS regs, which makes them look pretty smart and ahead of the curve. It doesn't give any help to banks greater than $1 billion (especially investment test relief), and that just stinks !

I'm working on submission too Dave, so I'm not deep in the proposal yet, but my guess from an outside position at this point would be that they are proposing to structure it somewhat like the large bank test. You can't score enough points for an outstanding rating if your lending is low-satisfactory. This leans on the value of the lending test being the highest or most important part of the CRA.

But I haven't read it, so that could be pure crap

Depending on their clasification it could be a good thing. I'm completely against each agency having a different defination, which confuses the hell out of everyone. I also would like to see subsidiaries being held to the current standards, without a blanket rule on size.

I don't think the investment test is too hard so I can't chime in there. It's just a mattter of putting together your performance context. If you don't focus on that and don't have the numbers, yup, you're screwed

So Dave, what it means is that if you're an "Intermediate Small Bank" (between $250MM and $1B) you no longer have a service and investment test. You instead have a "Community Development" test that encompases the service and investment tests of the past (in an easier fashion). You have to get a Sat on both lending and CD to get an overall Sat.

I read the proposal this morning and I have to say....YIPPIE!!!! finally a regulatory proposal that isn't written by idi...ummm nevermind I'm glad the OCC finally got involved, and showed that they are once again the toughest, but fairest! agency out there. This proposal isn't an embaresment to the banking community, stays within the spirt of CRA and does not give any regulated bank an unfair advantage over a bank regulated by another agency. Kudo's I can finally write a nice comment

Here's the OCC's draft: Link

Ok, now my questions is this. I was examined a year ago, so probably next in 2006. As I write this, we sit at ~ $920 million. If we go over $1 billion right before next exam, what happens???

Well, CD, in that case, you are going to experience first hand what "it stinks" is.

Dawnie - I am in a Fed member bank. As far as I know,the Fed was not part of this proposal. So much for a level playing field.

They'll come on board Anon. Give them time. The Feds are a pretty good agency as well. They tend to be pretty fair, and considerate of their banks. Where the OCC and the FDIC tread in unison, the Feds will follow. I'd bet money on it.

Dave I haven't scanned that deep, and don't know if it was addressed from my reading, but my guess again (I do that a lot) is that it will follow the same pattern as the old reg, in that you'll need to hit the $1 billion two years running. We'll see, but that makes sense (e gads did I just guess that a regulatory body would make sense?...I've lost all credibility)

And I do see relief in the reg in this proposal. The added and defined "rural" issue will be a benefit to me. I still have no problem with the investment test, as I've stated before, but this will expand the ability to take credit for those on the fence deals that should qualify as CD Lending but don't currently. Add that to your performance context..."We can't find the investments so we put a high focus on CD lending" and you'll ace the tests.

The main thing for us is that we will not have to report our CRA loans if we under $1 billion...is that right? We are just barely over the $250 mm threshold. We have a CRA exam in 2 weeks - think they will be a little more lenient on us since we are going to be going back to a small bank?

Shanon

There is a common misconception that the annual reporting requirement and a CRA exam are one in the same. They are not, they are two seperate functions. Not reporting data once a year does not chage the function of a CRA Examination.

While you may not have to file an annual report, you will still be required to gather and provide examiners with a host of information about your CRA activities for the examination.

If you are an 800 mil bank and not tracking loan activity by tract income classification or what percentage of lending is inside and outside an assessment area, and just waiting for examiners to come in a suprise you with the results of their findings, IMO is not a good thing to do.

Annual reporting is just a small portion of the total CRA process.

Don, are you saying that we should continue to collect information on our CRA small business and small farm loans (just as we do now but for reporting purposes), scrub it, and keep it maintained on our reporting software? I understand that we will still have our CRA activities looked at and I am comfortable with that portion of the exam. We are fairly new to the reporting and geocoding requirements (CRA and HMDA hit only one year apart for us) so that is what my struggle has been. Not having the burden of reporting that information(even if only temporarily) will be a relief to us.

I like the proposal. I think it is reasonable and fair and well thought out.

I just don’t understand why the agencies aren’t working together on this. Fed is not part of this proposal and the OTS has already issued their own new rule.

It doesn’t affect my Bank anyway because we are already well over $2 billion, but I still think the rules—whatever they are—should be the same for everyone.

Here's the 2/25 FRB release:
http://www.federalreserve.gov/boarddocs/press/bcreg/2005/20050225/default.htm

I can only speculate on what you should do about data collection under the proposed change. I don't see where it changes a lot, as even a small bank under current regulations is asked to provide a lot of loan information prior to an exam.

Presented with a letter requesting the forwarding of loan information for several years since a last exam, and have to recreate it a couple months befor an exam is a worse nightmare than having to do an annual submission.

I wouldn't go dumping data collection processes until I had a real good understanding it was OK to do so.

Shannon, make no changes until a regulation is final! To do so, as Don mentions, is a huge mistake. You have absolutely no idea when and how this will end up. Today, we keep operating business as usual.

Absolutely ~ I was just thinking about after it's final. I'll visit with FDIC when they here in a couple of weeks for their opinion about what to do once it is final.

I believe the proposed changes are misguided and ineffective. First, the primary criteria that are used to measure bank performance under CRA come from the loan market data reported by reporting lenders. Now if all the lenders under $1 billion don't have to report (at least half the reporting lenders), the only data left would be the data reported by large lenders. This means it would be all but impossible for smaller banks to compare their CRA lending to their peers, unless you're going to take the time to read through many performance evaluations (I know Dawnie does this, but heck, what else are you going to do when half the year is dark 24/7- only kidding Dawnie). This makes your CRA self-assessment more difficult and uncertain. Remember also that the proposed changes don't exempt banks from CRA responsibilities. They just eliminate the reporting requirement and make a token change to the community development requirement. There are software programs available for under $1,000/year that prepare CRA data for submission, so the cost saving can't be that significant, unless you don't intend to monitor your CRA lending anyways.
Good banks recognize that the market data available under CRA and HMDA (you can be as small as $35 million under HMDA and have to report) can help them not only assess their regulatory performance, but also analyze their lending markets in more detail. In 2004, one of our client banks took the time to really study the CRA loan market data report we compiled for them and realized the data showed a significant market opportunity in the form of small loans to small businesses that was being dominated by the mega-lenders. Subsequently they developed and marketed a special program aimed at that market niche. The program has been a great success. Without the complete market data available under CRA they wouldn't have even recognized the opportunity. This is a good example of how CRA can actually help astute bankers. That is not to say that there isn't room for plenty of improvement under CRA. I believe it is a big mistake to eliminate small business loans that have residential real estate as part of their collateral. And there are too many gray areas and inconsistencies. In particular, I believe the community development investment and lending tests need to be reconsidered all together. Back here in Connecticut in 2003 one lender extended 95% of all the community development loans reported by Connecticut based lenders. Half of the Connecticut lenders did not report even one community development loan. Nationally, more than 33% of the 2,103 reporting lenders did not originate even one community development loan in 2003. And, nationally, more than half the lenders reported 2 or fewer community develpment loan that year. There is another danger in relieving so many lenders from reporting. The old adage, "Out of site, out of mind" applies. I've seen too many non-reporting lenders ignore CRA until an exam is scheduled -and then the fire-drill starts. Why have a regulation that expects you to perform, but doesn't require you to report? This approach will only encourage an undisciplined attitude. Eliminate the ambiguities and clarify the definitions would be the easiest and most productive changes the FFIEC should consider.

One other thing I neglected to mention in my previous comments. The proposed changes incorporate entirely new issues into the CRA performance rating. See "Effect of Certain Credit Practices on CRA Evaluations" section of the proposal. This is the "camel's nose under the tent". Note that it is hidden in the very last section before the requests for comments section. It seems to me that bankers in their rush to be exempted from reporting under CRA may overlook this other potential briar patch tucked in the back end of the proposal.