|
via e-mail
FLEETBOSTON FINANCIAL
CORPORATION
Ms. Jennifer J. Johnson
Secretary
Attention: Docket No. R-1156
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
Mr. Robert E. Feldman
Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Office of the Comptroller of the Currency
Attention: Docket No. 03-21
250 E Street, SW
Public Information Room
Mail Stop 1-5
Washington, DC 20219
Regulation Office
Chief Counsel’s Office
Attention: No. 2003-48
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
Re: Interim Capital Treatment of Consolidated
Asset-Backed Commercial Paper Program Assets
Ladies and Gentlemen:
FleetBoston Financial Corporation (“FleetBoston”) sponsors
asset-backed commercial paper conduits (“ABCP”) that are important tools
used to serve our customers’ financial needs. They serve as funding
alternatives for our customers’ assets and allow us to transact certain
types of risk management activities for our customers. As such, we
appreciate the opportunity to comment on the U.S. bank supervisory
agencies’ (“Agencies”) interim final rule (“IFR”) on the risk-based
capital treatment of consolidated ABCP assets.
In response to recent abuses of special purpose entities (“SPE”)
where assets and liabilities were moved off corporate balance sheets
without the appropriate transfer of risk, the Financial Accounting
Standards Board (“FASB”) has reacted by issuing Interpretation No. 46 on
the Consolidation of Variable Interest Entities (“FIN 46”). It is
important to note that our industry’s use of ABCP conduits in the
service of its customer base has not been questioned. Further, we feel
that the impact on banks is not reflective of the true economic
exposures.
In our view, the implementation of FIN 46 does not change any of the
underlying economics or risks of ABCP conduits or a bank’s risk profile;
it is only a change in the accounting treatment of this activity. Also,
the current regulatory capital rules already require that any risk
retained by a sponsoring organization be assessed capital. Consequently,
a bank’s regulatory risk-based capital ratios should remain unchanged,
which is the general result of the IFR. In addition to supporting this
action, we would go a step further and make this a part of any final
rule until superceded by the U.S. version of Basel II.
Our one major concern with the IFR is its reduction of a bank’s tier
1 leverage ratio, which is caused by reflecting the impact of FIN 46,
and is inconsistent with risk-based capital portion of the proposal.
With a large enough decline in the leverage ratio, we believe there is
the potential for triggering prompt and corrective action (“PCA”) with
no underlying deterioration in a bank’s soundness. Therefore, we
strongly recommend that any FIN 46 effects be removed from the tier 1
leverage calculation (i.e., a treatment that is consistent with the
risk-based capital calculations).
Our reasoning is based on the fact that neither the tier 1 leverage
ratio nor FIN 46 is a true measure of bank safety and soundness. First,
the level of balance sheet assets supported by tier 1 capital is an
imprecise if not totally misleading measure of risk and therefore of a
bank’s soundness. For instance, the addition of low-risk assets, such as
ABCP assets, to the balance sheet has the same impact on the leverage
ratio as the addition of the same amount of risky “B-rated” commercial
loans. As the preceding example points out, the leverage ratio is not a
very risk-sensitive measure and one that has little relevance to the
safety and soundness of an institution. Granted this issue exists in the
current environment, but since exceptions are being proposed for the FIN
46 impact on risk-based capital ratios, we believe it should also apply
to the leverage ratio.
Secondly, the FIN 46 requirement to consolidate an ABCP conduit with
little risk transference overstates the risk profile of a bank. For
example, is it less risky for a corporate borrower to fund assets on its
balance sheet using commercial paper issued in its own name but
supported by a bank back-up facility, versus the borrower selling those
same assets to an ABCP conduit, which is also funded by commercial paper
and supported by a bank back-up facility? We would argue that the
conduit is actually less risky because of the mitigants embedded in the
structure, but the conduit assets nonetheless are recognized on the
bank’s balance sheet implying a greater riskiness. The Agencies have
recognized this issue in the risk-based capital calculations, and we
urge the same treatment be given the leverage ratio.
In conclusion, we support the Agencies removal of any impact of FIN
46 from regulatory risk-based capital ratios because an institution’s
risk profile remains unchanged as a result of this accounting
recognition. In fact, this treatment should be permanent until the
implementation of the U.S. version of Basel II. Our major concern is
that FIN 46 will lower a bank’s tier 1 leverage ratio, which conveys
misleading risk-profile information. We feel that FIN 46 should cause no
change in the leverage ratio, which is accomplished by removing any
non-economic, accounting effects from its calculation.
FleetBoston is prepared to provide further input to the Agencies’
deliberations on this topic. Please contact Thomas Loeffler
(617-434-7501 or thomas_h_loeffler@fleet.com) or William Schomburg
(617-434-6158 or william_h_schomburg_iii@fleet.com) with further
questions or comments.
Sincerely,
/s/ Joseph R. Dewhirst
Joseph R. Dewhirst
Senior Vice President and Treasurer
FleetBoston Financial
Mr. Jack Hall
Examiner in Charge
Office of the Comptroller of the Currency
℅ FleetBoston Financial Corporation
Mail Stop MA DE 10304N
100 Federal Street
Boston, MA 02110
Mr. Timothy MacDonald
Directing Examiner
Federal Reserve Bank of Boston
℅ FleetBoston Financial Corporation
Mail Stop MA DE 10304N
100 Federal Street
Boston, MA 02110
| 
