Comment Letters to Regulators
November 21, 2000
Office of the Comptroller of the Currency
250 E Street, S.W.
Washington, D.C. 20219
Attention: Docket No. 00-19
Dear Madam or Sir:
On behalf of the Community Bankers Association of Illinois ("CBAI"), I am submitting this comment letter in response to a Notice of Proposed Rulemaking ("NPRM") published by the Office of the Comptroller of the Currency ("OCC"). The NPRM addresses a "Lending Limits Pilot Program" affecting the lending limits applicable to national banks in certain states. Specifically, the rulemaking would amend 12 CFR Part 32 to enhance the small business and residential real estate lending authority of national banks headquartered in states where state banks benefit from lending limits that exceed the limit applicable to national banks.
CBAI is a professional, not-for-profit trade association representing the interests of more than 530 Illinois financial institutions. CBAI's members include commercial banks, savings and loan associations and savings banks that can be either federally-chartered or chartered by the State of Illinois. Members of CBAI can be found in each of Illinois' 102 counties. While CBAI provides numerous benefits and services for its members, CBAI's primary role is that of an advocate for the interests of community banking in Illinois. It is in this role that CBAI submits this comment letter.
First, CBAI supports and appreciates the OCC's ongoing efforts to reduce unnecessary regulatory burdens on community banks and to enhance the ability of community banks to compete fairly and effectively in today's banking environment. In CBAI's view, the proposed amendments to 12 CFR Part 32 reflect further support for the competitive interests of community banks.
The NPRM specifically requests comment on whether loans to small businesses should be secured by specific types of collateral in order to qualify for the increased lending authority. CBAI suggests that such a requirement is unnecessary and is perhaps inconsistent with the "parity" objective of the proposed amendments to 12 CFR Part 32. The State of Illinois, for example, has a higher lending limit for state-chartered banks than the current lending limit applicable to national banks. See Section 32 of the Illinois Banking Act (205 ILCS 5/32). There is no systemic or historic problem in Illinois with state-chartered banks making unsecured loans or under-secured loans to small businesses at the maximum loan amounts allowed by Illinois law. There is no requirement or condition stated in the Illinois statute or in any relevant banking regulation issued by the Illinois Office of Banks and Real Estate that mandates specified collateral that a state-chartered bank must obtain to secure a small business loan made at or near the maximum amount allowed by Illinois law. Any amendment to 12 CFR Part 32 that would impose a requirement or condition regarding specific collateral that national banks must obtain to maximize their lending authority with respect to small businesses would not appear to be based on any demonstrable need (i.e., evidence that banks make or will make unsafe and unsound loans to small businesses under the amended regulation) and would place a regulatory burden on national banks that is not imposed on similarly situated state banks.
The OCC proposal requires that a national bank submit an application to the OCC in order to qualify for the use of the enhanced lending authority. The bank's submission must include those components identified in proposed Section 32.3(b)(6)(iv). The OCC may, or may not, approve the national bank's application after determining whether such approval "is consistent with safety and soundness." Although CBAI recognizes that the OCC wishes to maintain broad regulatory discretion, it is not clear that additional considerations would be relevant or helpful in guiding either the bank applicant or the OCC. The regulation would already require that the bank be well capitalized and meet specified regulatory rating thresholds, and that the bank's board of directors would assert adequate oversight of the additional lending authority. CBAI recommends that, after establishing such minimum standards, the OCC should consider accepting notice (containing the same information currently envisioned in the proposed application) of the national bank's intent to take advantage of this authority rather than requiring formal approval by the OCC. A notice procedure would provide the OCC with information regarding which national banks were prepared to take advantage of the new lending authority without imposing a new, formal layer of regulatory approval.
The proposed amendments to 12 CFR Part 32.3 include the addition of the following language as Section 32.3(b)(6)(v):
(v) Provided that a bank remains an "eligible bank," OCC approval of the bank's authority to use the exceptions in paragraphs (b)(6)(i) and (ii) of this section is effective for three years and may be renewed.
The proposal does not, however, address the treatment of an individual loan that was made in good faith when the national bank was eligible for this authority but which subsequently (within the three year period referenced above) falls out of compliance. For example, a national bank that has received OCC approval under this pilot program may make a qualifying small business loan on January 1, 2001, but a subsequent change in the bank's composite Uniform Financial Institutions Rating may cause the bank to no longer qualify as an "eligible bank" on January 1, 2002. The above-quoted language indicates a clear intent that, upon no longer qualifying as an "eligible bank," the national bank could not rely prospectively on its prior OCC approval to continue making loans under this pilot program. However, it is not clear from the NPRM how the individual loan already on the books in excess of the bank's "standard" lending limit would be treated by examiners. It is not clear, in the example cited above, that the OCC's current regulation on "non-conforming loans" (12 CFR 32.6) would be applicable. CBAI requests clarification that a national bank which makes a loan in compliance with the pilot program will not be found in violation of the National Bank Act or 12 CFR Part 32 if the bank subsequently becomes disqualified as an "eligible bank."
Finally, CBAI supports the OCC's proposed amendment to Section 32.3(c)(5) that would permit opinions from State Attorneys General or other appropriate State legal officers to form the basis of a conclusion that an instrument qualifies as a "general obligation" of a public entity.
Thank you for this opportunity to comment on the proposed amendments to 12 CFR Part 32. If you have any questions or if I can provide you with any additional information, please feel free to contact me.
Jerry D. Cavanaugh
Community Bankers Association of Illinois