SHOREBANK CORPORATION
Draft of October 6, 2003
Comment Letter
Basel Proposals
National Association of Affordable Housing Lenders
November 3, 2003
Robert Feldman
Executive Secretary
Att: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, D.C. 20429
Dear Mr. Feldman:
The ShoreBank Corporation ("ShoreBank") appreciates the opportunity
to comment on the proposed Risk-Based Capital Rules, commonly known as
the Basel proposals. We would like to draw your attention to a potential
unintended consequence of the proposed regulations that would adversely
affect the amount of equity capital available to support investments in
low income and distressed communities by banks and bank holding
companies. In particular, the proposed regulation would negatively
impact "investments in community development corporations (CDCs) and
economic development entities (CEDEs) that promote the public welfare,"
including qualified Community Reinvestment Act (CRA) investments.
As the country's first, and largest, community development financial
institution (CDFI), ShoreBank has benefited greatly from equity
investments by several large banking companies that would be subject to
the new regulations. These investments have enabled ShoreBank to deliver
over $1.5 billion dollars in loans and investments to disadvantaged
communities throughout the United States. ShoreBank's investments have
resulted in the rehabilitation of tens of thousands of affordable
housing units and the growth of thousands of small businesses.
Our concern with the proposed rules relates to the "materiality test"
used to determine the capital requirements or equity investments. The
proposed regulations state that in the event a bank's (including a
consolidated bank holding company's) equity investments exceed 10% of
total tier 1 and tier 2 capital, equity investments, other than public
welfare investments, will be assessed significantly increased capital
charges. Although the increased charge would not be assessed against
public welfare investments, such investments are included in the
calculation of total equity investments. Consequently, banks would have
a strong disincentive to make public welfare investments if they boosted
the capital requirements of other holdings. This is contrary to public
policy as expressed not only in the Community Reinvestment Act but also
in the federal programs that are referenced in the proposed regulation,
such as the Low Income Housing Tax Credit.
We believe the unintended result of this regulation would be a sharp
reduction in the number of investments made by banks in low income and
distressed communities. To avoid such an outcome we respectfully request
that CRA-qualified investments be excluded from the "materiality" test.
ShoreBank also is concerned that regulators may be inclined to
interpret the proposed regulation so that only tax-advantaged and
government-guaranteed equity investments are excluded from the A-IRB
equity capital charge. Such an interpretation would severely
disadvantagc other public welfare investments in CDCs and CEDEs. We urge
that the exclusion apply to all public welfare investments in CDCs and
CDEDs. These institutions are a critical complement to more conventional
banking organizations in ensuring that all America's communities have
access to opportunities for economic growth.
ShoreBank believes that should the regulations be implemented as
written and the exclusion be limited to tax-favored or subsidized equity
investments, future CRA-qualified equity investments in the communities
we serve would be jeopardized. Fewer Americans would have opportunities
to purchase homes, accumulate assets, start small businesses and
participate in the American Dream.
Thank you for your consideration. Should you have any questions,
please feel free to call me at 773-420-4903O or my colleague Joel
Freehling at 773-420-4953.
Sincerely,
Fran Grossman
Executive Vice President
Shorebank Corporation
7054 S. Jeffery Boulevard
Chicago, IL 60649
