WILLKIE
FARR & GALLAGHER LLP
March 25, 2004
Docket No. 04-06
Office of the Comptroller of the Currency
250 E Street, S.W.
Washington, D.C. 20219
regs.comments@occ.treas.gov
Docket No. R-1181
Ms. Jennifer J. Johnson
Secretary
Board of Governors of the Federal Reserve System
20th Street and
Constitution Avenue, N.W.
Washington, D.C. 20551
regs.comments@federalreserve.gov
Robert E. Feldman
Executive
Secretary
Federal Deposit Insurance Corporation
55017th' Street, N.W.
Washington,
D.C. 20429
comments@fdic.gov
Attn: 2004-04
Chief Counsel's
Office
Office of Thrift Supervision
1700 G Street, N.W.
Washington, D.C. 20552
regs.comments@ots.treas.gov
RE: Community
Reinvestment Act Regulations ("CRA Rule")
Dear Sirs:
On behalf of the CRA Qualified Investment Test Coalition, I submit
this comment letter on the CRA Rule.
The CRA Qualified Investment Test Coalition was formed to monitor
proposed regulatory and other changes to the qualified investment
test of the Community Reinvestment Act. The Coalition strives to
provide objective information to the regulatory agencies about how
a proposed regulatory change likely will impact market conditions
and the legal requirements relating to CRA qualified investments
as well as to offer suggestions on how to improve the administration
and functioning of the qualified investment test. We welcome the
opportunity to comment on the CRA Rule.
In the Supplementary Information of the CRA Rule, it was stated
that several institutions said there are insufficient equity investment
opportunities, especially for smaller institutions and those serving
rural areas. It can be difficult for financial institutions to identify
suitable qualified investment opportunities. However, even for smaller
institutions and for those serving rural areas, qualified investments
can be found for financial institutions to successfully meet their
qualified investment test requirements. These are market based investments,
not grants. We agree with the regulators' concerns that some financial
institutions believe they are expected to make equity investments
that are economically unsound.
We also agree with the regulators' conclusion that changing the
structure of the large retail institution test would not necessarily
yield a substantial net benefit. Additionally, we agree with the
regulators' conclusion that the freestanding investment test has
become an integral part of CRA and the community development finance
markets. In addition, we share the belief that evaluation of investment
performance under the test has contributed substantially to the growth
of the market for community development-oriented investments.
With respect to revising the asset-size threshold at which an institution
becomes subject to the retail institution test as a response to comments
that smaller institutions at times have had difficulty competing
for investments, we believe that suitable qualified investments for
such smaller institutions do exist in the marketplace. Accordingly,
we would respectfully suggest that the regulators consider any changes
in the asset-size threshold due to other reasons besides unavailability
of qualified investments for smaller institutions.
Finally, the CRA rule notes that the regulators anticipate developing
additional interagency guidance to clarify that the investment test
is not intended to be a source of pressure on institutions to make
imprudent equity investments. We wholeheartedly support your efforts
at such clarification.
Additionally, you seek comments on other possible additional topics
to be considered as part of additional interagency guidance, including:
1. When community
development activities outside of assessment areas can be weighed
as heavily as activities inside of assessment areas;
2. That the creation
of "innovative" and "complex" are
not ends in themselves, but means to the end of encouraging an institution
to respond to community credit needs;
3. The weight
to be given to investments from past examination periods, to commitments
for future investments, and to grants; and
4. How
an institution may demonstrate that an activity's "primary
purpose" is to serve low- and moderate-income people.
With regard to
weighing community development activities outside of assessment
areas, we
applaud the flexibility shown to date in
regulatory rulings and interpretations regarding the CRA "credit" given
to investments on a state-wide and regional area basis. We believe
that further reinforcement of the rulings made to date and further
clarification of instances when an institution can receive "credit" for
an investment outside of its assessment area, but where the investment
is made on a regional or state-wide basis which includes the assessment
area, would be quite useful. The regulators may also wish to extend
the concept applicable to limited purpose and wholesale institutions
to grant credit to other types of institutions for investments outside
of a pertinent assessment area if the financial institution has satisfied
the investment needs within its assessment areas.
With respect
to the "innovative" and "complex" determinations,
it is our view that the capital markets are changing very rapidly
in this area so much so that keeping up with industry investment
activity in and of itself likely justifies an investment as being
innovative and complex. Of course, we also support the conclusion
that these. are means, not ends in themselves, to encouraging an
institution to respond to community credit needs.
With regard to
the weight to be given to investments from past examination periods,
to commitments
for future investments, and to grants, we
would be alarmed if grants were to be emphasized as part of the qualified
investment test. Instead, we would strongly urge the continued weighting
of investments from past examination periods and commitments for
future investments as being the primary means to satisfy the qualified
investment test; furthermore, we would recommend that the regulators
not "downgrade" an institution for maintaining the same
types and levels of investments in its portfolio when the next examination
cycle commences. Rather, if those investments were suitable and appropriate
for the institution when originally made, and the business model
for the institution continues to provide an appropriate rationale
for the continued holding of such investments, we strongly urge the
regulators to affirm that decision as a sensible, prudent approach
which should garner full CRA credit, and that the alternative would
encourage needless churning of the institution's investment portfolio.
With regard to
the fourth and final point concerning an activity's "primary
purpose" to serve low- and moderate-income people, we would
encourage the regulators to provide more flexibility in this area.
Allowing credit to be obtained when there is a mixed use of low-
and moderate-income individuals, and other near low- and moderate-income
individuals would be helpful. Likewise, taking a flexible approach
concerning the benefits within a low- and moderate-income geography
would also be very helpful; for example, further guidance on employment
benefits in such a geography or other positive economic aspects of
investment in such a geography would be useful, as well as special
attention to near low- and moderate-income geographies in rural areas.
We thank you for your consideration of these comments.
Sincerely
Timothy R. McTaggart
Submitted on behalf of the CRA Qualified Investment Test Coalition
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