Does anyone know the status of the proposed changes to CRA, which included increasing the designation of a "small bank" to those with assets of $1 billion or less?

It's out for comment. See this. Go down to May 10 for the text of the proposal from the Fed'l Register. The comment period is 60 days for this one.

There is a public comment period that expires May 10. After that the regulators will digest the comments received and decide what if any of the proposed changes they will implement. I strongly suggest that banks that would fall into the intermediate category take a very close look at the community development element of the proposal. In order to receive an overall satisfactory rating a bank will have to get a satisfactory rating on the community development part of the test. In other words, "community development" loans, services or investments will be more emphasized under the proposed changes and will be indispensible for obtaining at least a satisfactory rating for your entire CRA test. You will be responsible to document your community's need for "community development activities" and how you are satisfying those needs. degree to which its performance has failed to meet the standard for a “satisfactory” rating.
"(2) Community development test ratings for intermediate small banks. (i) Eligibility for a satisfactory community development test rating. The OCC rates an intermediate small bank’s community development performance “satisfactory” if the bank demonstrates adequate responsiveness to the community development needs of its assessment area(s) or a broader statewide or regional area that includes the bank’s assessment area(s) through community development loans, qualified investments, and community development services. The adequacy of the bank's response will depend on its capacity for such community development activities, its assessment area’s need for such community development activities, and the availability of such opportunities for community development in the bank’s assessment area(s)."
Intermediate banks will have to become much more involved with community development activities or be able to document that the opportunities don't exist (sounds like the regulator's version of the "null hypothesis"). I think this could be a big problem for many community banks.

While the initial reaction is, hooray I won't have to make an annual report and life will be easier, you may find this change be more worrysome than an annual submission.

First banks will have to become real community activest. Mere lip service is not going to be good enough.

Banks will be competing against all the other banks in town for community development activities.

A great deal of flexibility, will be required of the bank to put community development activities together. A great deal of time will need to be spent working with local agencies and community groups.

Throwing money into a pool for CD credit is not going to be a solution.

It doesn't mean loans to small business/farm and fair lending requirements are going away.

Think about how you would implement and participate. Can you think of community development activities you can do now, and how the bank would participate enough to get credit? Can you gage managements reaction and willingness to participate with non profit organizations in the community if that was necessary?

Are you ready to become a social resource for the community?

Don't let the passion to get rid of a task considered burdensome overshadow the burden of what it is being replaced with.

Wait a second...the proposed change is basically the current reg, in that they want to see performance context. The banks being affected should be doing that already if they're going through large bank exams.

Being in touch with your community needs isn't new to CRA. Any good bank is already there, intermediate, small or large. You don't have to become a social resource for the community at all. But heck, why are you in a community if you haven't spent some time figuring out it's needs? From HMDA loans (to all income levels) to development.

Throwing money in a pool for CD credit would be a solution, if that's what your community needs. No different than now. I just don't get the fuss. It's business as usual, with a new twist on the value of the activities.

Dawnie you are assumeing banks are doing this already to the depth you have gone to in your own organization.

However in the real world most have not done so. Only a very small percentage of institutions even report any Community Development Loans in their annual submission.

Sure, there may be some activity that is not reported in a submission. Part of our CRA Analysis is to report all CD activity in our Management Summary Report prepared for the Board. It will suprise you the number that have nothing to report or only a couple small items to their own management.

Obviously, some like yourself are very involved and will have no problem. Unfortunately, for all to many, this is going to be something they have not paid much attention to and its going to mean a change of direction for them.

My comment about the pool was not ment to be so literal. It refers to thinking the only thing necessary to comply with all the requirement is to put money in a pool and they are done with CD. While that may be 1 acceptable action its not the entire solution to complying with the change.

Yes, its been part of the exam process for many but with a more intense focus on CD its going to be a whole new ballgame. IMO for many this is not as simple as droping one requirement and replaceing it with something they are already doing.

"But heck, why are you in a community if you haven't spent some time figuring out it's needs? "

Everybody's done this right?

I'm just asking folks to think this through and look at how their institution is prepared to comply. If they are as on top of it as you are great.

Hey Don, I just noticed the timing of your response. I thought I was the only one who responded to threads after midnight!
IMO the community development aspect of the proposed changes is going to be a rude awakening for many "intermediate" size banks. I've cited the stats in previous threads regarding community development lending (or lack of it). I've consulted with many community banks that have a very difficult time with CD activitities already. Some of my clients are dead set against the proposed changes and in particular the CD aspect. The regulators would do more good by clarifying some of the contentious issues we've discussed in "threads" like residential collateral for many small business loans including SBA loans. Also, they should make the data available in the same format they do the HMDA data. i.e., you should be able to identify lenders' lending activity down to the census tract level and they shouldn't eliminate reporting for the intermediate lenders because there won't be any peer data left to compare 90% of the banks in the country. The barometer will become the bigger more sophisticated banks like, dare I say it, Dawnie's! But many community banks simply don't have the personnel resources to dedicate to CRA. For most community banks it is a part-time job filled by persons who have many other responsibilities. Identifying community development opportunities can be very time-consuming and frustrating and the bigger lenders will have a huge advantage in this respect, but only their data will be available for comparison. Many potential CD loans are not reported as such because the rule of thumb is if it qualifies as a small business loan it must be reported that way (another advantage for mega lenders who may have many cd loans that exceed $1 million each and therefore are not reportable as small business loans whereas the small lenders must report many loans with cd characteristics as small business loans although they can keep a "memo account" of those loans for exam purposes). Don and I have the insight provided by helping many community bankers with their CRA responsibilities and we both recognize that many elements of the proposed changes are a mixed blessing at best. But think about it - right now community development activities are not required to get a satisfactory CRA performance rating. With the proposed changes cd activities will be indispensible! Are you really prepared for that?

Should smaller & intermediate sized banks start their own "foundations" that they use to administer community development funds? This would allow a vehicle for more direct applications from community groups with specific proposals.

I've been seriously considering this because of the amount of time that is spent with "community groups" is great and the measurable results are nominal. Most of the Mega Banks have these foundations and have a process for evaluating applications.

The benefit would be:
1. Less time at meetings.
2. More contacts with groups that have the ability to put together a proposal with measurable results.
3. Documentation that supports that the bank is looking at opportunities.

Does anyone have this in place at a bank under 1 billion?

-N Other Vu

Your comments are meaningful as IMO the changes proposed sure point in the direction that a "foundation" may be the way to go for a number of reasons.

It certainly would help with organization and control. I can also see that the title "Community Development Officer" is going to become popular if the change is enacted.

Community Development Officer is one of my titles Don Gad forbid if there are more of me

Anon, I am a $2 billion bank and I wouldn't consider it at this point. First, running the foundation could be a full time job in itself. Who's going to handle the legal aspect, tax reporting (while there wouldn't be taxes you still have to file a non-profit filing) etc. It would be trippling your time with minimal benefit if you're not going to increase your giving substantially.

Mega banks do this for a couple of reasons. One because of community group pressure. We're not talking the little community group down the street, but instead, perhaps the NAACP national group. It's an easy appeasment to say "We're putting $3 billion into LMI lending specifically targeted to African Americans" and run it through the foundation. Are you facing that kind of pressure? Do you have the funds to make significant announcements like that? I don't and I'm pretty darned well off. (You and I are referring to our banks by the way)

The other reason is it's a nice easy way to build CRA CD investments. "Invest or filter" the money from the main bank into the foundation and it's a slam dunk investment. But again, this is only meaningful in the large bank world. For us, we don't have the staff or funds to make it meaningful.

Mega banks staff these programs with lenders, community development staff, etc., you aren't going to have that level of staff, so you won't be able to make the deal make sense (via a return to the bank).

I'm curious about the cmment that you spend too much time with community groups that have little results. Consider this...don't spend time with the groups that aren't valuable on a business level. When I started in my position I went to all the HUD meetings and other "stuff" that my predecessor did. I spun my wheels and wasted time, with no value. After an assessment, I pulled out of all of those meetings and focused on projects that would have CRA benefit, but also a benefit to the bank as a whole.

I don't have a foundation, but that isn't stopping me from getting infront of the groups that can put together a proposal of value. You'll find that these folks aren't at the useless meetings either

Documentation that supports that the bank is looking at opportunities? You have loan files, your calendar, your muni websites? You don't need much more. There is no need to document how long you spend chasing every CD deal. You need to show instead why you focused on that deal (did you see it as a way to meet the investment test, or offset a lack of investment opportunities with CD lending, etc.). I can tell you that my examiner (and from his grumbling and other examiners grumbling) most examiners don't want to see every single request that comes through your door. The instead want the meat and potatoes stuff. The stuff you funded. This is what I provide them, not a copy of every single request that crosses my desk.

Thanks for your input!

Your points regarding the foundation and IRS requirements are well taken. There are donor-advised funds out there that may be beneficial to your bank. Check out: www.nptrust.org

Thanks again!

Did I just fall for an advertisement? I sure hope not

No, it wasn't an "ad" just an alternative that is out there. I'm really a banker, really attending community meetings, really looking for a solution & all options...

Thanks again!!

MUst go

thanks for checking back. I hate falling for trick advertisements so I'm glad you cleared me up.

On the link...that's still too expensive for a bank of your size. Unless your budget is a great deal higher than mine annually Since I'm twice the size, with an incredibly high net tier one, I'm going to guess maybe not?

Does anyone have a link to the FDIC's site where we can view the comment letters received so far? On the prior proposal someone provided a link - my search is turning up nada. I'm wondering how they are running. Haven't gotten mine in yet but planning to.

Forget it, I found it!

I looked and couldn't find it either. COuld you provide me the link? Would appreciate it!

Perseverance pays off. I finally found it too.

http://www.bankersonline.com/topstory/comdeadline.html

Try this.

Whoops, I meant to give you this one, it should be more direct.

http://www.federalreserve.gov/generalinfo/foia/index.cfm?doc_id=R%2D1225

I'm sure there's any easier way to do these.....

Somebody kick me - I didn't realize you answered your own question too. Is it Friday?

Thanks anyways Popeye - I don't THINK it's Friday but then again yesterday I couldn't remember what day it was all day! You would think by 8:00 at night I would have had a clue - not.

Has everyone written their CRA comment letter? When I looked, it appeared there were not many letters from banks. Maybe the banks all wrote early in the comment period. I did not look at those. Good Friday Evening!

I didn't want to peeve ya'll off and write my opinions You might beat me up at a seminar (I'd really like to see the threashold somewhere ate $500M verses $1MM). I gave my comments in person in DC this week though, so perhaps the beatings should begin

I agree Dawnie, the proposed changes could be much worse for banks than what they have now. There is a need to look beyond the desire to escape some data reporting at what is being proposed.

I see the same form letter is being sent by bank after bank, compliance office after compliance officer. Doesn't anyone have any original ideas as to why this change should be made?