Does any one know what the examiners will use to evaluate intermediate small banks if we are no longer required to collect data?
Also, as an intermediate small bank will the deposit ratio requirements come into play again?
Thank you.

I don't think anyone knows just yet how an exam will be conducted. IMO though you don't have to collect data for "reporting". I haven't seen where its not going to need to be collected at all.

Under the change, intermediate small banks will be evaluated under 2 separately rated tests. One of those is the small bank test that we have used for the last 10 years. The press release called it the small bank lending test because lending is just about all that the small banks are judged on, unless they opt to have investments and services reviewed, too.

Under that small bank test, there are what we call 5 performance criteria:
1. Loan to deposit ratio (This is used in place of the data collected by larger banks, as a proxy to answer the central question, Does the bank lend?)
2. Percentage of your lending within the assessment area
3. Distribution of loans to borrowers of different income levels, and businesses and farms of different sizes
4. Geographic distribution of loans
5. Your record of taking action on CRA related complaints

To do this type of exam without collected data, examiners will simply select samples of loans made since the last CRA examination to arrive at their conclusions regarding the performance criteria. For example, a sample of 30 loans may be selected. The examiners will determine what percentage of those loans are to low-, mod-, middle- and upper-income borrowers and compare those percentages to your assessment area's demographics. Same with the geo distribution and lending in the assessment area.

So, that's how we do it without collected data. AR.

Don, I'm with you on this one. We are an OCC bank and before we were a HMDA reporter, we were required to keep the same information as the HMDA reporters in a format that the examiners could use to review our HMDA activities. It just made sense to use the same form and keep it in a database that we could download to them for their review.

My first thought on the CRA data is that we have all the tools in place, we have been reporting, why not just keep on gathering it (now that we finally have those lenders 90% trained) and provide it at exam time?

"2. Percentage of your lending within the assessment area
3. Distribution of loans to borrowers of different income levels, and businesses and farms of different sizes
4. Geographic distribution of loans."

So all of this is done by pulling 30 - 40 loans? If it can be done then why have banks been required to collect this information for years.

Stastically the bulk of loans originated are in Middle and upper income tracts. So if 30 40 etc loans are pulled and geocoded by examiners the odds are most and perhaps all are going to me in Middle Upper tracts.

It therefor makes sense to me when examiner come up with little or no lending in LMI tracts the bank will still have to prove that loans are made in LMI areas.

Won't the bank still have to at least identify Small Business/Farm loans (which means tracking/collection of some sort)or will examiners search through the portfolio to find some for the test.

Unless there are loan programs like buying dealer paper or mortgage loans the average 500 million bank originates about 1,000 loans a year. If examiners come around every 3 years thats 3,000 loans originated since last exam.

I guess I'm a little dense on this but I'm not seeing where pulling 50 loans is going to provide a true picture of lending inside vs outside AA, Distribution or information on number and percentage of loans to tract classifications.

Sorry I still think thers more to it than meets the eye.

And under a separate "Community Development test", an intermediate will also be evaluated on:

The number and amount of CD loans
The number and amount of qualified investments
The extent of CD services
The responsiveness of the bank in providing the above acivities

So tell me again how this provided relief?

As for the CD loans, do they still have to be in the AA to get credit? We keep running into a wall with nothing available for years at a time (small rural community) and I seem to remember a little relaxing of the rules for banks that do participate in CD loans in surrounding AAs.

Even non-reporting banks are going to have to perform under CRA. Now, what kind of management would not monitor a bank's CRA performance given the serious implications of a failure to comply? This means every bank should have an ongoing CRA self-assessment process. But you can't have a self-assessment process without collecting the data! So the relief from reporting the data is not such a benefit for bankers who don't want to wait around for the next exam to find out how they're performing under CRA. On the other hand, every bank must now get a satisfactory rating on "community development activities". My experience consulting with many community banks suggest this will be a big problem. I have stated before that more than half the reporting banks reported 2 or fewer CD loans in 2003 (latest data now available). I know that some people suggest there is under reporting of CD loans. But I know of banks that have reported CD loans that were disqualified during a CRA exam. So it's hard for me to believe that there is a serious volume of unreported CD loans. There may be some under reporting, but at the same time there also may be some over reporting. Most bankers I have conferred with think the CD opportunities are very limited and often monopolized by the major lenders (which is corroborated by the reported data). So achieving a satisfactory level of CD activities may be very difficult. And if you don't have much in the way of CD activities you had better have the market data to prove that there are very limited opportunities in your community or that the pricing of CD loans and investments by the big guys makes it impossible for the community bank to compete. Finally, the only loan data that will be available to compare your performance with will be that of the big guys. There will be no peer data available except by the time-consuming process of reading one by one the performance evaluations of other lenders. But would you rather have the data on all competing lenders or only those examined in the last year and are you prepared to spend hours compiling the data so that you can then begin the process understanding what the market data is telling you about lending opportunities and benchmarks in LMI tracts and to very small businesses? IMO this "relief" is not the blessing many bankers think it is.

But the real question is - is an "intermediate small bank" really a small bank for examination frequency purposes??? That is where a lot of real burden will be lifted! I don't think they addressed that issue and unfortunately, when the examination frequency was changed by Congress in the GLBA in 1999 they specifically cited the $250MM threshold. I believe it would take another act of Congress to raise the frequency threshold as it is now specifically addressed in law.

I have read through the final rule and I have many questions as well and have a call in to our FDIC field supervisor but it may be too soon for him to have answers for me yet. We are just over the $250 million and have been since 2001. We had our first large bank exam in March of this year and it went well. However, I did a lot of preparation and put together an entire binder of everything CD loan, investment, service, flexible products, etc. that I could find. I did have more CD loan write-ups for my exam than what I had reported on my CRA LR because although I felt like I could not count all of the particular CD loan to account for it being on the CRA LR, I did feel that during an exam I could get partial credit which was the case on some of them.
It is my opinion that I will still have to compile these notebooks for the intermediate CD exam and pretty much not change anything that I did in preparing for the large bank exam. As far as data collection and having data on lending activities as Anon Regulator mentioned, I know they can go by the call report codes to find which are the farm and business loans to sample, etc. but our core system does not geocode so without continuing to use my CRA software and collecting that information we cannot have a picture ahead of their sampling of what our AA ins vs outs are and so on. Granted, not having to worry about the reporting will be nice since we won't have to worry about having an error free submission, etc. and I can concentrate solely on our HMDA scrub, submission, and edit reports.
I am looking forward to seeing the interim exam procedures to see what all they entail!

FWIW, our FDIC field examiner told us pretty much word for word what AnonRegulator stated above. It will fall on their shoulders once they are in to do a sample of files to determine our lending patterns. She also mentioned that we would have few peers to compare the information to with such a limited number of reporters in our area. I cannot remember what she said they would use as a comparison, but in a nutshell, she made it clear we would need to be in a strong leadership position to earn a satisfactory rating. She agreed with me when I stated that in our day-to-day duties we may experience some relief with not having to do data collection, but come exam time, there will be no relief. We will essentially graded the same way, just without the documentation & "tools" we are used to.

"She agreed with me when I stated that in our day-to-day duties we may experience some relief with not having to do data collection, but come exam time, there will be no relief."

Can you expound a little more on the No Relief part. Will you be asked to provide data at exam time?

I went through our recent performance evaluation (that was done in March) from our large bank exam and trying to "guess" as to what might be left out in the new "flexible community development exam" and I don't think there will be too much except for some of the tables, etc. that the examiner prepared from the data mining he did beforehand and on site.

I'm really not grasping the part of the final rule in which it expounds on the "flexible" part of this exam - can anyone provide your thoughts on that? I'm reading that the 3 CD categories will be weighted but how and by whom?

I'm with you 100%. I think we shouldn't even specifically tell lending staff that the data won't be reported, because they've worked so hard to try to get it right.

I recently changed banks. I went from a large bank to a small intermediate bank. Based on what I am reading here, it sounds like I should implement all the strategies that we used at the large bank to receive a satisfactory rating. I'm referring to the collection of information about CD loans and keeping track of CD services.

It doesn't appear that there is any relief for small intermediate banks (other than not having to remember to send the data). For me it will be business as usual.

Well Dolly - at least March 1st of each year will contain one less headache!

Amen to that!!!! Over the years, I have come to hate the months of January and February. I wonder why?

I'm concerned, as I can see most of you are, that real relief may not be there. I've read Anon regulator's response and I'm REALLY surprised. If, based on their really small sample, they draw conclusions that we disagree with, we MUST have the data available to be able to refute, right? I'm in a quandry as to how to change or if to change?

Ok wait all you middle sized boys and girls....YOU DON'T HAVE TO DO DATA COLLECTION! If that's not relief, I don't know what it. I certainly wouldn't bother if I didn't have to do it. No data integrity, not data gathering, reporting, geocoding! sheesh I could let a staff member go if I was in your shoes.

You have the ability to pull samples in the exact same manner your examiners do, and then compare that against peer data and market data. Geocoding 50 files or so is pretty darned easy using the FFIEC, so you also could let go of your CRA data collection software (that would save me $10M or so). Why on earth would you continue paying those bills and gathering that data when you can do exactly what your examiners are doing for MUCH less? I just don't get it. I don't care if the monkeys are fully trained, I would not gather the data if I wasn't darned close to hitting large bank status again within a year or two. If I was sitting pretty down in the $500MM or lower range...drop it all!!! You have call report data, pull the files from there and see how you look.

Now you do have to work a bit harder on CD activities than you have been, sure. But that's not unfair. So exam prep will be more, but generally reporting will be MUCH less. They've stated over and over again that CD activities will be rated by the needs of the community. What does this mean? It means you need to learn to develop a performance context You should have been doing this all along. If you haven't, so sorry, but you MUST do it now. You don't want to leave it to an examiner to determine if investments are more important than loans now do you? They don't live in your communities and so, if you leave them on their own, they'll have to do some guessing on the issue. Performance context will take care of this problem. If you choose not to do one, and fail the CD test, you have no one to blame but yourself.

Pulling exams and keeping your eyes on the competition is VERY simple, and VERY quick. I don't read the entire PE of all banks I pull (I pull hundreds annually) but I do a quick jot down of their figures on an excel spreadsheet. Typically this involves looking at 3 pages of the exam at most to gather NTO, (you'd also want LTV) Total CD Lending and Investments, and I scan for any "unique" mention that would have boosted their standing if the figures don't make sense. That's a 5 min read at the most. I read the entire PE of local folks, but that also should be part of your regular routine.

I forgot who asked, but CD lending, investments and services DO NOT need to be directly in your AA. If you can document that you are serving the needs of your AA (Performance context again) to the best of your ability, you can then step out and serve "A broader statewide or regional area". My PE would show you that a GREAT deal of the CD activity I get extra special credit for is actually located OUTSIDE of my AA, some quite a ways out of my AA. My performance context discusses our activities inside the AA, and the needs I've identified outside the AA and the "whys" that went through my head in making decisions to help these folks.

You all just had a gift thrown in your lap. Don't report for gads sake. If the HMDA or CRA gods would pop that gift on my lap I could cut my budget by a third or more, and fit in a little vacation time

I would be willing to bet $100 that I could go through your bank's portfolio, not knowing anything about your commmunity, and find at least 3 or 4 CD loans within a few hours of the files being pulled. I mean that about EVERY bank. I've done it at some who said they had "absolutely no opportunity because all the big banks sucked up the CD loans". You're just going to have to focus your learning in that direction now, and get darned good at write-ups That's not a bad thing at all.

One more thing, I totally agree with RFitzpatrick and Len S...The community development test is HARD in rural areas. This relief may actually make it harder to get a Sat rating.

I'll be in Texas in October...let me find you some loans tx sheesh you have SO MANY opportunities in rural communities you have no excuse not to succeed in the CD test on lending. (And, the majority of my AA is not only rural...but remote so I do know of what I speak). RFitz has a much harder challenge due to his locality than you do. He's smack in the middle of a pretty nifty little community with relative wealth in comparison to most of rural Texas.

Some of you have expressed concern over the small sample size I mentioned in my earlier post. That number was just an example. Examiners do adjust their sample sizes depending on the size of a bank. However, they are still relatively small compared to total lending, although they are usually statistically based. And if the results of that sampling are negative for the bank, we don't just stop there. We first ask bank management for their reaction to the results. Sometimes they agree that the sampling has reasonably represented the bank's overall lending patterns. If that's the case, our process stops.

Sometimes management disagrees with the sampling results. In that case, we expand our samples to see what that tells us. So, it's not quite the arbitrary process you thought. AR.

A few years ago, Dr Kenneth Thomas in "The CRA Handbook" was very critical of sampling techniques used by the regulatory agencies and cited numerous specific examples to support his criticism. He even questioned whether examiners were properly trained in sampling theory and techniques. AnonRegulator, was his criticism valid and if so, have examiners been better trained since then?

There seems to be a lot of second guessing about how intermediate banks will be evaluated. To me it seems like some "intermeidate banks" will be more umcomfortable having to rely on subjective community development activities. Why would that be?

The key to the subjective part of the assessment comes down to how well you present your case, in my opinion. Consider:

1. Documenting meetings related to community development.
2. Attend the meetings currently happening in your area.
3. Participate at community development meetings.
4. Start a community development organization if one doesn't exist.

None of the above are hard or costly. Starting a community developement group can consist of a few banks in the County and some Social service agencies that can meet in the often empty board room. Buy some sandwiches and soda. Agenda item: How can we work together to help more people with affordable housing? Done.

It seems that the burden is now on the banks to demonstrate that there is no "Community Development opportunity" as opposed to simply saying "there is no opportunity". The only way I would buy the statement, "There is no opportunity here.", would be if there are no B or C paper "mortgage specialists" in the area and no stand alone "check cashing" businesses. There are communities like that. And you could even point that out if a regulator wants market evidence of the lack of demand for such services.

The Community Reinvestment Act has been on the books for almost 30 years folks, what's the real issue here?

Dawnie, Thanks for your refreshing comments.

I love the idea of not reporting and this may be the way our bank will go. However, I attended an FDIC Compliance and CRA Roundtable in NYC yesterday and they strongly encouraged everyone to keep compiling that data. The CRA examiner even suggested most of her banks were going to continue to report in order to get credit for their small business loans. Since not reporting seems to be the main benefit of the revised reg, I was not happy to hear that.

I consult regarding CRA and HMDA for many banks that would fall into the intermediate size category and I am advising them all to keep their options open by continuing to maintain the data just as they have been. The revised regulation requires banks to get at least a satisfactory rating under the community development test in order to get at least a satisfactory on the overall performance rating. Many intermediate size banks may find this difficult. At the very least there will be a great deal of anxiety because of the uncertainty about what it will take to earn the mandatory satisfactory rating on the CD test. The revised regulation allows banks to elect to continue to be evaluated under the large bank standards provided the bank continues to report data as they have been doing. Therefore, unless you are extremely confident of achieving a satisfactory community development rating it would be wise to preserve your options and continue to collect and maintain your CRA data. Furthermore, every intermediate size bank should have an on-going self-assessment program to monitor its CRA performance. But how can you evaluate your performance if you don't collect the data? Would you be comfortable waiting to learn about your CRA performance at your next exam? How will you respond to potential criticism from examiners if you haven't collected and followed the data? Of course you could have some kind of self-assessment based on sampling data, but are you trained in sampling techniques and how much effort would that be in comparison to merely entering loan data? If you already have a system to do this (and there are a number of good software packages that do a good job) why junk the system and the disciplined procedures that you should have in place now as a reporter? Sure you may have some problems with the current system, but what I think banks are doing is trading in one set of problems for a potentially bigger set of problems. In the Northeast, the community development market has been dominated, if not owned, by the mega-lenders. The little guys are eaten alive in the CD market back here. At the very least continue to collect the data while you determine if you can be confident of a satisfactory rating on community development activities. But even then, you should have a data collection program that gives you the loan information you need to judge your performance, so why throw away a system that is already doing that?

samsara...that's nuts! Yes the major benefit is the lack of collection. In a few months you'll go to a conference in Texas and hear just the opposite, don't collect if you don't have to. For gads sake you were just handed a golden egg, EAT UP BABY!! No data integrity, no submission hell, sheesh it would be CRA Malpractice to continue to gather and submit. CRA is all about "Safe and sound". How sound is it to require the bank to spend the money it takes to complete data this is completely unnecessary? It's irresponsible at the very least. For an examiner to tell you to do this (that's what your post sounds like) is completely wrong. I personally would have had their boss on the line in about 30 seconds after returning from that conference. It shows a complete lack of understanding on the examiners part and represents the FDIC very badly.

I know I keep harping on this, but pull a sampling in the exact same manner as your examiner will and test your data regularly. Keep copies of this data and analysis for the examiner when they show up. If you look good, you can counter any data that disagrees with their sampling in the same manner as AnonRegulator suggested by discussing your findings and theirs, and providing the hard analysis for them to consider.

I'm sorry, and I'm going to now ruin my consulting career but I must say this. I am a firm believer that what we do in our CRA world is good and right, but I am also a firm believer in my bank being profitable. This is how I get such strong support from senior management and why we maintain an Outstanding rating. Reporting data that is not necessary is going to bite into the bottom line. You can save yourself money and time, and probably consultant bills by not spending money on the reporting piece of CRA if you're falling into the new category and don't see the future big bank world coming up very very soon. Spend your consultant money, and your time on what matters, development of a performance context which includes the CD piece. If your consultant can't figure out how to do it without the LR in front of them, consult with one who can.

Ok shoot me now

"In some ways this is a relief for XXX and myself (less work), but in other ways the loan people get away with an OJ-like crime of incompetence and they have held my compliance efforts up for four and a half months resulting in an unfavorable third party audit of my compliance function."

The above was received from a compliance officer at an intermediate bank. It is typical of whats going to happen in that what is not monitored is not done. Loan officers are not going to pay a bit of attention to the needs of LMI individuals or areas if the activity is not monitored. It is not a good thing to wait until examiners show up to find out how you fare. Especially as a bank still needs to get a satisfactory rating.

Dawnie dear I love you but we are going to disagree on this issue. I believe you position is based solely on the experience and what you have done at your bank. What you have espoused about your CRA processes is not typical. That opinion of mine is coming from having done a lot of CRA analysis in the past few years for banks of all sizes from all over the US. Trust me not everyone has the time training or support to do the job like you do.

"You have the ability to pull samples in the exact same manner your examiners do, and then compare that against peer data"

If there is no reporting there is no peer data. You may be referencing a review on exam posted on line. Again you can't compare if you have not collected the data at your bank to compare.

"Now you do have to work a bit harder on CD activities than you have been, sure." "So exam prep will be more" (last is out of context)

The amount of work thats going to be required is going to be very painful for many. They are going to have to get up out of their chair and actually go out into the community and "DEVELOP" CD activities. Not everyone is as outgoing capable or sales minded as you are.

"It means you need to learn to develop a performance context You should have been doing this all along. If you haven't, so sorry, but you MUST do it now. You don't want to leave it to an examiner to determine if investments are more important than loans now do you?

"I would be willing to bet $100 that I could go through your bank's portfolio, not knowing anything about your community, and find at least 3 or 4 CD loans within a few hours of the files being pulled."

I have no doubt this will be true in some banks but just based on conversations with CO's over the years discussing Community Development, most have paid no attention to this at all and IMO you will have more banks with 0 than you will with a few that accidentally made a CD loan but had no idea they did. Or there is a glimmer of data that would allow for some imagineering.

From Anon Regulator
"And if the results of that sampling are negative for the bank, we don't just stop there. We first ask bank management for their reaction to the results. Sometimes they agree that the sampling has reasonably represented the bank's overall lending patterns. If that's the case, our process stops."

So without any data collected how are you going to respond to the examiners questions as related above?

Data can now be collected very comfortably within acceptable tolerance without all the detailed scrutiny. It will be accurate enough to get a good idea of where you stand. So a big burden has been lifted just don't lose sight of the fact that you are still going to have to comply and "Defend" against any negative an examination determines.

"I am a firm believer that what we do in our CRA world is good and right"

I also am an idealist and believe in our industry that gave me so much. But when I do an analysis and see that in a metropolitan area of a major US city that bank Branch's completely circle the Low income tract area, and less than NONE of the banks loans are made in that rather large area, or a bank setting up an AA that jumps across the LMI tracts and then picks up the tracts around a branch on the other side which also eliminates LMI tracts., or a bank with less than 10% of it loans originated in its AA, or no loans in an AA LMI area in the last 3 years, I have to tell you there is a reason CRA was implemented and should continue to be.

Believe in our industry yes, but don't be a naive idealist like I was. There are many hard working and careing bankers out there. But ther is just enough who are not to keep regulations like CRA in place. I have stated in other posts that we all pay for that.

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Loan officers are not going to pay a bit of attention to the needs of LMI individuals or areas if the activity is not monitored. It is not a good thing to wait until examiners show up to find out how you fare. Especially as a bank still needs to get a satisfactory rating.

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Don darling...I don't think I've ever said that you should close your eyes and quit monitoring. I said, develop a quarterly program, using the same criteria as your examiners (random sampling) and monitor the data. You have to do this to develop a real performance context. Going into a CRA exam blind would be silly, but you don't need to spend thousands to go into it like the big boys and girls when you have the option of a sampling and regular monitoring.

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Dawnie dear I love you but we are going to disagree on this issue. I believe you position is based solely on the experience and what you have done at your bank. What you have espoused about your CRA processes is not typical. That opinion of mine is coming from having done a lot of CRA analysis in the past few years for banks of all sizes from all over the US. Trust me not everyone has the time training or support to do the job like you do.

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I love you too...and not just because you have such a gorgeous name My position is not based solely on what's happening at my bank. I'm a large bank and I'll stay that way...data collection and all (actually I'm ok with that). It's based on my experiences talking to banks all over the nation about CRA both on line and when I'm teaching at seminars. And I do run a hell of a program, but I know of many banks who also run a great program. The one thing well all have in common is that we look to the bottom line as well as monitor CRA performance. This is why we have the support of our management. Senior management at any bank is not going to sneeze at a CRA program that brings in cash AND does not spend cash when it is not necessary. To be taken seriously, both need to be considered for a strong program.

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If there is no reporting there is no peer data. You may be referencing a review on exam posted on line. Again you can't compare if you have not collected the data at your bank to compare.

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Peer data is still out there. Pull exams on larger banks (not BofA but folks like me). Half of your PE write up is done copying my work if you're an ISB now a days. Charts and graphs are all there as well as the resources that folks like you make available (market data including income levels of tracts, people, etc.)

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The amount of work thats going to be required is going to be very painful for many. They are going to have to get up out of their chair and actually go out into the community and "DEVELOP" CD activities. Not everyone is as outgoing capable or sales minded as you are.

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Well how to respond to that thank you for the last line but to the first...umm isn't that our job? How have these banks been doing their performance context all along if they're hiding in their offices.

Oh and here's a silly thought.."I" don't develop all of (or even the majority of) the CD deals I report. I do however sit in my cozy little office on snowy winter days and review the lending portfolio carefully (files not a list of names) and LOOK FOR those loans that fit the CD criteria. The majority of the deals I report fall into the "found" category, not sourced. I may source many large deals, and frankly I do, but heck, I was hired to do that...much as any other CRA officer would be.

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I have no doubt this will be true in some banks but just based on conversations with CO's over the years discussing Community Development, most have paid no attention to this at all and IMO you will have more banks with 0 than you will with a few that accidentally made a CD loan but had no idea they did. Or there is a glimmer of data that would allow for some imagineering.

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You're quite right, and those who have ignored their portfolios or "assumed" as our bank used to do, that they had none, are going to be hit hard by this regulatory change. But...they deserve it. EVERY community has needs. Most banks are meeting them. If they're not, well heck they deserve the low rating they've got coming.

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From Anon Regulator
"And if the results of that sampling are negative for the bank, we don't just stop there. We first ask bank management for their reaction to the results. Sometimes they agree that the sampling has reasonably represented the bank's overall lending patterns. If that's the case, our process stops."

So without any data collected how are you going to respond to the examiners questions as related above?

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Back to the first paragraph. You still need to, or need to do even more, monitoring of your performance, but you don't need to do it more aggressively than your examiner would. Have the data ready (your sampling pulled exactly as they would) and your analysis of that data as well. You'll have what you need to be successful.

Dawnie, banks that see CRA merely as a cost center are never going to get it right. One of the primary benefits of CRA is the abundance of loan market data available that allow detailed market analysis right at your finger tips. Until now, any bank over $250 million could see the reported data on their peers and on any and all reporting lenders in their market (or anywhere) in a matter of minutes for a nominal cost (usually just a few hundred dollars). Market rank, market share, lending in LMI areas, lending to very small businesses, etc., have been immediately and cheaply available without having to cull through hundreds of PE's (some of them years old). Companies like mine and others have collected, compiled and organized the data to make it very easy to see the critical performance context data. But more importantly, the abundance of easily accessible data that was up to date and compiled on thousands of lenders has been extremely valuable as a potential marketing resource that could show bankers new and profitable market opportunities. I have seen bankers who have recognized the potential value of the CRA (and HMDA) loan data and have used the data to develop more successful and profitable loan programs and market strategies. The way to get strong Senior Management support for CRA is to show them the marketing benefits of CRA data. I don't know a bank president who isn't interested in how his/her bank compares to peer lenders as well as the entire market. So cutting the number of reporting lenders in half will eliminate all the peer data for the intermediate size banks and deny astute bankers a profit opportunity.
As far as cost savings of not reporting, I am skeptical. Again, like Don, I have seen many community banks during the past 11 years. The CRA software used by many community banks costs less than $2000/year (including geo-coding). If you are a one-state community bank and are paying more, you're paying too much. I don't sell the software so I don't have an axe to grind. The personnel who manage the CRA software are almost always the same who are managing the HMDA software, so personnel cost savings will be minimal in most cases. If you are going to revert to sampling, a certain amount of sophistication is required. To be honest, I have yet to meet a banker at an intermediate-size bank that understand statistical sampling and its application to CRA. So how will an intermediate lender collect the data to monitor their performance? Most CRA officers have been frustrated by the confusing and aribitrary defintions of what is reported or not reported. That is where real reform should have happened. Eliminating much of the confusion and clarifying issues (many of which have been debated here) would have been real relief for CRA officers and removed much of the anxiety that many CRA officers now endure.
How is a resonsible CRA officer going to be confident about an "all or nothing" community development test? If CRA officers are anxious under the 1995 system, think about the anxiety you can have with this new "community development or else" approach! Again, Don and I have seen many good community banks who have rendered real service to their communities not do well on the community development investment and lending parts of the test. These banks are in danger of failing their CRA performance evaluation - for what, not having to upload the data they should be collecting for their own self-assessment anyway? Most of my clients are going to continue collecting and reporting the data and preserve their option to elect to be examined under the current large bank test where CD activities are not mandatory for getting a satisfactory on the overall PE. I don't want to be responsible for encouraging banks to risk their entire CRA rating on one test that is ill-defined, arbitrary and difficult for many community bankers. I think bankers are better off hedging their bets with the balanced set of tests that have been in effect for 10 years than taking the "all or nothing" community development activities approach in exchange for not having to report their data. In my opinion the bankers are getting the short end of the stick on this "reform".

Getting back to the original post, has anyone found out what will be used as a secondary comparison? The Peer data will be even more skewed by the intermediate banks not being included.

I think what Len and I are trying to say is don't dump your data collection until you really know how this change shakes out. We both share a point of view that you should know exactly what the requirements and standards are before you put you sole trust and faith in a government regulation to look after your best interest. We also see that there is much more to this than what people are understanding.

Len has stated his understanding of the reg (which I agree with) if you don't meet the CD standards. You are going to FAIL the CRA exam period. That seems pretty clear. Dawnie has stated if you have not been out there doing CD work you deserve to fail. I'm saying this is going to take a different mind set by management to comply with, and we all know how management is eager to make changes for CRA purposes. This is not going to be like pre 1996 where you could go to the Kiwanis meeting and get CRA credit. No not at all. Actual community participation is a requirement.

There seems to be an option on continuing to report CRA data which may be beneficial to some institutions. Len and I are saying don't dump your processes until you know for sure you don't need to take advantage of that option.

Even if what Dawnie is espousing comes close to actuality, you still need to monitor your data. Dawnie is just saying use the sampling formula to do that instead of actual data. We are saying thats not a good idea especially if don't understand the inaccuracies of it, or know what you are doing. MONITORING YOUR DATA IS STILL NECESSARY.

Remember that the three of us are individuals with an opinion. None of us have an inside track with examiners and can state definitively how this change will effect you. My opinion and I'm sure Lens are based on our experience with performing hundreds of CRA analysis using actual bank data and having one on one, great working relationships with many many Compliance Officers and bank management personnel. We know your pain and we know the internal workings of a lot of banks now classified as intermediate banks.

Lets hold off a little and understand the effects of an examination before dumping processes that took years to get in place, are demolished. My company motto is "People and the decisions they make are only as good as the information they have access to." IMO We need some more information before a good decision can be made.

Chris, talk to your examiner. While the data is not going to be gathered on banks your size, it still exists from larger institutions. Look at some of the small bank exams, they find peers despite the lack of hard data to the FFIEC. Remember that YOU work WITH your examiner to pick your peers. If you're way off base, they'll pick for you, but they do not want to see banks fail (believe it or not) so if they're picking the wrong banks to use as your peers, show them why.

My peers are hundreds if not thousands of billions larger than me as well as a bank across the nation from me. They also use a couple of small banks as peers. If your current peers are reasonable, they will probably use them. As I always advise, call your examiner and ask them They rarely bite and if they do, call their ombudsman (they are muzzled)

Oops, by the way, a small bank or intermediate bank has the option of being examined under the large bank test as always. Most don't do this (I sure wouldn't if I didn't have to) but if you're going to ask for this, be sure you're ready to live up to the standards that BofA and Wells do, because they'll expect it of the smaller banks who ask for this option.

We became a "large" (over $250MM) institution during the proposal period. We were supposed to start reporting data, but never did because of the proposal. Now (after the final rule) we are deemed an "intermediate small bank" and I read all that you are saying about not giving up your data gathering. However, I was never data gathering or reporting so I don't know how to start. Should I find some software? I was thinking of just going through our portfolio by hand to identify CD loans. . .is this good, bad, wrong? Please help!

As far as CD loans, our data software does not include that and the way our loans are set up, CD loans are not easy to find through queries either. In the past couple of years (when we were a large bank), I relied on the lenders to inform me if they were doing a possible CD loan deal. However, due to some changes that we had to make for HMDA anyway, I now see all of the inhouse loan worksheets our lenders email to our central loan processing dept. by adding me to that email group. The bad part is I get every car loan, etc. in my email but the good part is I get an opportunity to not miss out on any possible CD loan deals.

Laural L Good question and one everybody is confronted with. I would hold off 30 days or so and lets see if here is more information available so a good course of action can be decided on.

You definitely need to get some CD information going so I would start that process. However please look at the new regulations as there is more to the CD requirement than originating some loans.

Under the Community Development Test you will be evaluated on:

The number and amount of CD loans
The number and amount of qualified investments
The extent of CD services
The responsiveness of the bank in providing the above acivities.

Shannon You are beginning to see some of the things being overlooked in the rush to escape data reporting. Yes some type of database will need to be set up and I'm sure it could be done using Microsoft Excel or Access if you don't have a lot of different data to collect.

It also means time will be needed to track and COLLECT CD information including loans. Someone is going to need to do a study of your AA and get a report together on CD opportunities in your community. The next thing is someone is going to have to join, or set up some sort of participation with community groups and organizations. Someone needs to look at opportunities for the bank to develop services and products and participate with those community groups.

The new req requires active participation or a good reason why tere is no opportunity to do so.

Len, I appreciate your well-developed thoughts, but I ask a favor.....

Please insert more white space in your posts! Breaking your thoughts into paragraphs would be so much easier to read -- my eyes get lost in that big block of words!

Dear Anonymous,
Yes

I will break my thoughts into more paragraphs! Thank you for your helpful suggestion.

Shannon and LauraL, Don and I are trying to get banks to carefully consider their options before they stampede into the new intermediate-size category. As I said in another post today ("Intermediate Bank, Important Issues"), the public data sure does suggest that a lot of intermediate banks will be treading on thin ice when it comes to community development activities. If I were a CRA officer I would not jettison my CRA loan tracking system just yet. I would like to keep my options open by continuing to maintain my loan data for reporting purposes (and it won't hurt for self-assessment anyways). I would be very reluctant to allow my bank to have its entire CRA PE hinge on its community development activities unless I had a strong track record over a period of years.

My immediate concern with the change in CRA right now is whether or not I am going to have to produce January through August CRA loan data. I read it that we will no longer have to collect and report CRA data, however, the effective date is September 1st.

Am I going to get hit with a request from examiners on the next examination to produce data from these months?

No Mama, you'll be evaluated under the appropriate test, with no requirement to use data that was not submitted (from the mouth of an examiner). They don't have a way to merge the charts and their sampling data to make that work. (which is great for you)

Thank you Thank you Thank you!!!

After a recent BSA examination I expect the worse in everything so I could just see examiners wanting that information up to September 1st.

Don and Len S, your concern that banks not give up their data collection effots is touching, but I would take your comments more seriously if both of you were not involved in providing CRA data collection products/services.

Just what I expected from an anonymous poster I can already imagine who you are. Why in the world does our comments have less value. You think we are not telling the truth about something?

What Len and I are attempting to do is stop a headlong stampede into dumping processes that may prove to be detrimental. We are asking bankers to stop and take a look at this. If in 30-60 days it appears this is not an issue then dump it but for gosh-sakes understand what you are doing.

Instead of looking at ulterior motives you should be looking at the post and the information being provide. If you don't agree with it then join in an open civilized debate that we can all benefit from. Taking cheap shots on something you are entirely ignorant of is not called for here. This subject is to important to be hijacked by idiot comments.

Its too bad you can't accept the fact that I am trying to give some honest advice based on a lot of years of experience back to an industry that I care about.

I have never hidden ANY of my post behind "Anonymous" even if they were contrary to other opinions. I do try and provide some level headedness and get people to think before they do something they may regret later because they didn't have all the information.

Grow up

Dear Anon,
I do not sell any data collection products or software to track loan data. I analyze CRA and HMDA performance and provide extensive databases and mapping services (not software) to help banks with their CRA and marketing responsibilities. But again, I don't sell software to collect bank CRA loan data. So I have no conflict of interest in this issue and even if I did, I hope you would be openminded enough to look at the validity of the ideas we are sharing with you. Is it common on BOL to personally impugn the motives of BOL contributors?

Yeah Don! I for one APPRECIATE all your comments!!!!!

I appreciate all your comments too, Don! You have helped me numerous times sort out regulations!

I would hate to think what these threads would look like without experts like yourself making valid comments! Thanks for all you do!

Don has helped me many times and I can appreciate his point of view. We became a large bank and began the data collection process at the beginning of this year and it has put a hugh strain on an already overworked, stressed out small organization.

If dropping data collection and the burden of reporting is one thing we can do do help us get through the day we are going to drop it. I agree that it would be beneficial to continue for our own analysis but our limited resourses is best spent on the monster facing us right now.......BSA/AML.... at least until we have a larger staff and more resourses available to us.

Thanks Don!!

Wow, you guys are sensitive. I guess you missed the that was meant to indicate that my comments weren't all that serious.

Len, it was not my intent to "personally impugn" your motives, and if I came across that way I sincerely apologize.

Don, I did not mean to imply that your comments have less value (although you implied that my comments have absolutely no value because I post anonymously), I was just pointing out that you do have a vested interest in banks continuing their data collection efforts.

You stated that we should have an open civilized debate. Well, let's see, because of my comments you called me ignorant, you called me an idiot, and you said I should grow up. Not very civilized in my opinion.

Don, my earlier post obviously touched a raw nerve, and I apologize for that. It was meant to be a lighthearted comment, but it apparently didn't come across that way. Next time I'll think twice before posting those kinds of comments. Once again, my apologies to both you and Len.

Anon -
Apologies accepted. By the way your comments in an earlier post regarding documenting CD opportunities were very good. I regard the threads as a great opportunity to share ideas and, yes, to stimulate debate. I have no problem with sharing differences of opinion but sometimes it's tricky to convey humor in writing to strangers.
Don and I are competitors in some areas, but I am getting to know him and to appreciate his very long and widespread experience and I certainly respect his opinion which is based not only on his experience as a banker but as a consultant to many bankers. I think that is one of the things Don and I bring to the table. We not only specialize in this compliance area, we see the regulation through the experience of hundreds of our community bank clients. Most BOL readers have experience at 1 or 2 institutions. So I think it is fair to say that we bring a broad perspective and in-depth experience with many community banks that gives very valuable insight into how CRA affects many different bankers in many different parts of the country.

Sorry, I didn't realize I hadn't signed in on that last post

Just to set the record straight, those comments you referred to about documenting CD activities were not mine. They must have come from a different Anonymous poster.

RLCarey
In rereading these threads I caught your question regarding exam frequency which I think is a very good one. In reading the revised reg, I could not find any specific reference to clarify this issue. If intermediates don't get the small bank exam frequency that's one less potential benefit of the revision.

Here's an idea.....

Intermediate Banks can go back to the 12 Assessment Factors!

Start keeping memos of all those meetings with High School Principals, Chambers of Commerce, local Neighborhood Housing groups......

We called it CRA by the foot!

Oh - and who can forget loan to deposit ratios for EACH census tract!!!!! Ouch!

I'm getting nostalgic for my wall map with the stick pins: Green for deposits, blue for loans, and orange for declines.