via emailIllinois
Facilities Fund
November 3, 2003
Mr. Robert E. Feldman, Executive
Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW, Washington, DC 20429
Dear Mr. Feldman:
The Illinois Facilities Fund (IFF) is
submitting comments in response to the Advance Notice of Proposed
Rulemaking on the proposed Risk-Based Capital Rules, published on August
4, 2003.
As a statewide, nonprofit community
development financial institution (CDFI), the IFF provides real estate
loans, real estate planning and development, management education and
public policy to nonprofits throughout Illinois. Since 1989, the IFF has
made 260 loans totaling more than $65 million to help 183 Illinois
nonprofits such as child care centers, youth shelters and community
health clinics, to buy, expand, or renovate their facilities. The IFF
has also provided real estate services, including real estate
consulting, development, and project management services to over 45
nonprofit organizations.
As a federally certified CDFI, the IFF
works with nonprofits serving low-income and special needs populations.
IFF offers a wide range of programs which help build and maintain
financially sound nonprofits, revitalize communities, and bring services
to people in need. The IFF has a track record of helping to create or
maintain 6,600 jobs and developing over 3 million square footage of new
real estate in traditionally underserved markets.
The Community Reinvestment Act (CRA) has
promoted investments by traditional financial institutions in CDFIs. For
instance, since the inception of the IFF, nine banks have invested in
our loan program, lending over $26 million at below market rates. With
these investments, CDFIs have the resources to specialize in providing
financial services and capital to individuals, small businesses,
religious or nonprofit community-based organizations in low-income or
economically under-invested markets. By focusing on underserved markets,
CDFIs fill financial gaps and stimulate economic revitalization by
offering services with rates and terms structured and products tailored
to meets the needs of their customers. In addition to financial
services, CDFIs provide extensive training and technical assistance
services for free or below market rates to ensure clients succeed.
The IFF applauds regulators for
recognizing the vital role of Community Reinvestment Act (CRA)
investments in the U.S., and negotiating for a special rule for
“Legislated Program Equity Exposures.” This section wisely preserves the
current capital charge on most equity programs made under legislated
programs that involve government oversight. CRA-related investments are
generally held harmless under the proposed rule. The fact is CRA equity
investments may sometimes provide lower yields than other investments,
but they also have lower default rates and volatility of returns than
other equity investments. For example, the IFF’s default rate is less
than one percent.
However, the IFF is concerned that the
proposed rules will negatively affect the ability of the IFF, CDFIs and
other community and economic development organizations from receiving
investments under CRA. Specifically, the “materiality” test of the
proposed rules requires institutions that have, on average, more than 10
percent of their capital in equity investments, to set aside much higher
amounts of capital on their non-CRA investments. As drafted, this
calculation includes even CRA investments that are specifically excluded
from the new capital charges.
Having to include CRA investments, with
their very different risk/reward profile, in the “materiality” bucket of
more liquid, higher-yielding, more volatile equity exposures could have
an unintended effect on the flow of equity capital to communities in
need. CDFIs and their bank partners have invested substantially in
community economic development (for example, through Low Income Housing
Tax Credits (LIHTC) or New Markets Tax Credits (NMTC)) that currently
approach, or even exceed, the 10 percent threshold just from CRA-qualified
investments alone. If the materiality test is adopted as proposed, it
could discourage banks from making CRA investments to avoid triggering
the higher capital charges on non-CRA investments.
The IFF appreciates the opportunity to
comment on the New Basel Capital Accord and reiterate the importance of
CRA for our organization and other community development organizations
throughout the country. Thank you for your consideration.
Sincerely yours,
Elizabeth A. Evans
Director of Public Policy and Communications
Illinois Facilities Fund
Chicago, IL
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