November 3, 2003
Mr. John D. Hawke, Jr.
Office of the Comptroller of the Currency
250 E Street, SW, Washington, DC 20219
Attention: Docket No. 03-14
Ms. Jennifer J. Johnson, Secretary,
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW, Washington, DC 20551
Attention: Docket No. R-1154
Mr. Robert E. Feldman, Executive Secretary
Federal Deposit Insurance Corporation |
550 17th Street, NW, Washington, DC 20429
Attention: Comments, FDIC
Regulation Comments, Chief Counsel's Office,
Office of Thrift Supervision
1700 G Street, NW, Washington, DC 20552
Attention: No. 2003-27
To Whom It May Concern:
The National Community Investment Fund (NCIF) is pleased to submit
comments on the proposed Risk-Based Capital Rules.
The National Community Investment Fund is an independent nonprofit
trust and certified Community Development Financial Institution (CDFI)
and Community Development Entity (CDE) intermediary that invests equity
and debt in banking institutions with a primary mission of community
development. With almost $20 million of investments in 27 development
banks and credit unions, NCIF is the nation’s third largest private
sector investor in development banking institutions, after Fannie Mae
and the Ford Foundation.
The vast majority of NCIF’s investment capital--$22 million out of
$23 million total—was placed by bank investors and included by them in
their CRA reporting. The banks in which NCIF invests have also been
frequent beneficiaries of equity investments by regional and national
banks that are fulfilling their obligations under the CRA Investment
Test.
NCIF supports the special provision for “Legislated Program Equity
Exposures” included in the proposed rule. We are pleased that this
section preserves the current capital charge on most equity programs
made under legislated programs that involve government oversight. Since
investments qualifying for credit under the Community Reinvestment Act (CRA)
are generally held harmless under the proposed rule, insured depository
institutions investing in such programs would generally set aside the
same amount of capital for CRA investments under the new rules as they
do now - about $8.00 for every $100 of capital invested.
NCIF shares the concern of many industry practitioners that the
proposed “materiality” test could diminish the interest of banks and
bank holding companies in investing in CDFIs or the communities CDFIs
serve, and could adversely affect the amount of equity capital flowing
into these specialized intermediaries and low wealth communities. The
proposed “materiality” test requires institutions that have, on average,
more than 10 percent of their capital in all equity investments, to set
aside much higher amounts of capital on their non-CRA investments. As
drafted, this calculation also includes CRA investments that are
specifically excluded from the new capital charges.
CRA investments in community development and affordable housing have
a very different risk/return profile than other equity investments.
While they may--but do not always--offer lower yields, CRA investments
also have much lower default rates and volatility of returns than other
equity investments. Many bank partners of CDFIs have invested
substantially in affordable housing and economic development (for
example, through Low Income Housing Tax Credits or New Markets Tax
Credits) that currently approach, or even exceed, the 10 percent
threshold just from CRA-qualified investments alone. Having to include
CRA investments - with their very different risk/reward profile - in the
same “materiality” pool with more liquid, higher-yielding, more volatile
equity exposures could have a chilling effect on the flow of equity
capital to communities in need. If the materiality test is adopted as
proposed, it could have the unintended result of discouraging banks from
making CRA investments to avoid triggering the higher capital charges on
non-CRA investments. NCIF strongly suggests that CRA-related equity
investments be excluded from the materiality test calculation.
CRA has spawned billions of dollars of investment in low income
communities and yet has barely scratched the surface of the reinvestment
needed in these income communities. We believe that the necessary
continued flow of capital will not occur if increased capital
requirements are enforced. We also suggest that, based upon past
performance of CRA investments, increased capital requirements do not
appear to be called for.
We thank you for your consideration and urge you to call us if you
have additional questions.
Sincerely,
Lisa Richter
Fund Advisor
National Community Investment Fund
Chicago, IL
