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NATIONAL COMMUNITY REINVESTMENT COALITION
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
Robert E. Feldman ,
Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Attention: RIN 3064-AC73
To Whom It May Concern:
On behalf of the National Community Reinvestment Coalition (NCRC), a
coalition of over 600 member organizations, I am pleased to provide
comments in response to the Advanced Notice of Proposed Rulemaking on
the proposed Risk-Based Capital Rules, published on August 4, 2003.
NCRC's mission is to increase fair access to credit, capital and
financial services. Since 1990, NCRC has spearhead the community
movement to end discriminatory banking practices and increase the flow
of private capital and credit into the low to moderate, minority, and
traditionally underserved communities. With a network of over 600
organizations and thousands of individuals, throughout rural and
mainstream America, NCRC supports and monitors enforcement of the
Community Reinvestment Act (CRA), the law that bans redlining and
requires banks to serve all communities from which they draw deposits.
Additionally, NCRC seeks long term solutions that provide resources,
knowledge and skills to build communities across the U.S. and the world.
NCRC and its 600 member organizations however are concerned about the
dire consequences of the proposed rules that could affect adversely the
amount of equity capital flowing into investments under the CRA. CRA
equity investments may sometimes provide lower yield than other
investments, but they also have lower default rates and volatility of
returns than other equity investments. A good example is demonstrated by
CDFIs in the network which have cumulative default rates of less than
2.3%, comparable to major banks.
Specifically, the "materiality" test of the proposed rules 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, such as venture funds, equities and some
convertible debt instruments. This calculation also includes CRA
investments that are specifically excluded from the new capital charges.
To include these CRA investments with their extremely different
risk/reward profile, in the "materiality" category of more liquid,
higher-yielding, many more volatile equity exposures could have an
unintended "chilling effect" on the flow of equity capital to
communities in need. CDFIs and their bank partners have invested
substantially in affordable housing and economic development that
currently approach, or even exceed the 10 percent threshold from CRA-qualified
investments alone. Examples of these include the Low Income Housing Tax
Credits (LIHTC) or New Markets Tax Credits (NMTC). If the materiality
test is adopted as proposed, it could discourage banks from making CRA
investments. We understand that these higher capital charges could be
twice as much on publicly-traded equities, and three times as much on
non-publicly traded ones.
Affordable housing, community revitalization and economic development
have been supported positively by financial institutions and are well
established public policy in the United States. Congress and bank
regulators have encouraged equity investments, and both the LIHTC and
NMTC program incentives. Also, the Federal Reserve released a study in
2000 confirming that CRA related investing is profitable and palatable
socially and financially with minimum risk to investors. Along with
these facts, the remarkable performance record of CRA-related
investments and more than $1 trillion invested to date, provide a strong
rationale to exclude CRA investment from the materiality test
calculation.
Therefore, we respectfully submit these comments for your
consideration in deliberation on these proposed rules.
Sincerely,
John Taylor
CEO and President
National Community Reinvestment Coalition (NCRC)
733 15th Street, NW, Suite 540
Washington, DC 20005-2129
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