Community Reinvestment Act compliance examination costs place an unfair burden on "large" community banks as defined by bank regulators, according to a study conducted by the Independent Community Bankers of America and Grant Thornton.
The findings are described in a new report entitled, "The High Cost of Community Bank CRA Compliance: Comparison of 'Large' and 'Small' Community Banks." The report reveals that CRA compliance costs can more than double when community banks exceed $250 million in assets and are no longer subject to streamlined CRA examinations. ICBA commissioned the study to provide data to support extending the streamlined exam to more community banks. Regulators are currently reviewing CRA regulations and considering whether changes are warranted to emphasize performance over paperwork or reduce unnecessary regulatory burden.
A survey of community banks conducted for the study showed the mean employee cost attributable to CRA (full and part-time employees) is 36.5% higher ($115,270 annually) at large community banks than at small community banks ($84,443 annually). In each of two case studies-one contrasting costs for a bank that grew from "small" to "large" bank status, and one contrasting costs for a "small" and "large" bank owned by the same holding company-CRA compliance costs were four or more times greater for large community banks than for small ones.
The investment test also represents a cost burden for large community banks, with 92% finding the market for CRA investment opportunities "competitive" or "highly competitive" and 69% saying such investments are "not readily available." Half reported giving yield concessions to make CRA-qualified investments. The report calls for an expansion of eligibility requirements for the small bank streamlined CRA exam to $1 billion, preferably $2 billion in assets; an elimination of the holding company size requirement; and an exemption from the investment test for large community banks.
"Increasing the small bank size limit would not undermine the purposes of the CRA. Rather it would free larger community banks from unnecessary costs, improving their productivity and enhancing their ability to meet the credit needs of their communities, says ICBA director of regulatory affairs Karen Thomas.
Questionnaires were sent to 1,000 community banks-500 banks with assets of $325 million to $2 billion and 500 with assets of $125 million to $225 million. Findings are based on a 28% response rate. An executive summary and the complete text of the report are available at www.icba.org.