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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: Notice of Proposed
Rulemaking — Capital Maintenance: Asset-Backed Commercial Paper Programs
and Early Amortization Provisions
Ladies and Gentlemen:
FleetBoston Financial Corporation (“FleetBoston”) sponsors
asset-backed commercial paper conduits (“ABCP”) that are important tools
used to serve our customers’ financial and risk management needs. They
serve as funding alternatives for our customers’ assets and allow us to
transact derivatives activities in support of our customers. In
addition, our liquidity management and funding activities make extensive
use of balance sheet securitizations of revolving assets that feature
early amortization provisions. As such, we appreciate the opportunity to
comment on the U.S. bank supervisory agencies’ (“Agencies”) notice of
proposed rulemaking (“NPR”) on the risk-based capital treatment of ABCP
conduits and securitization of revolving retail assets with early
amortization features.
As a general comment, we are opposed to what in our view appears to
be a piecemeal implementation of Basel II (capital for ABCP liquidity
facilities and securitizations early amortization feature). This is
especially disturbing because the changes being proposed are adding to a
bank’s regulatory capital requirements without providing any of the
benefits afforded in the Advanced Internal Ratings-Based Approach (“AIRB”)
for credit-risk capital. We therefore recommend that these proposed
rules not be enacted until all of Basel II is ready to go.
Asset-Backed Commercial Paper Programs
We recommend that the proposed 20% risk-weight for liquidity
facilities with maturities less than one year not be implemented at this
point, but instead be addressed as part of the U.S. version of Basel II.
First, there does not appear to be any empirical justification for this
weighting. Historically, ABCP liquidity facilities have low loss levels
that argue for minimal assignments of capital. Second, it appears that
ABCP facilities are being singled out unfairly. Why should these
specific facilities be treated differently that any other
less-than-one-year facility? Again, based on performance, facilities
backing ABCP conduits have demonstrated a lower level of losses than
other short-term facilities.
We wholeheartedly endorse the Agencies’ proposal to make permanent
their exclusion from risk-based capital calculations the ABCP conduit
assets that are consolidated as a result of FIN 46. In our view, this
treatment should also be applied to the tier 1 leverage ratio for
consistency’s sake. A reduction in the ratio that results from using
GAAP assets implies a deterioration in a bank’s safety and soundness
when in fact its risk profile is unchanged.
Securitizations of Revolving Retail Credit Facilities With Early
Amortization Provisions
This topic is being addressed as part of the U.S. version of the
Basel II capital accord (“ANPR”), which we feel is the appropriate forum
for this discussion. We are of the opinion that the capital required for
the potential of assets returning to the balance sheet is too great. We
do endorse the maximum risk-based capital provision so that an
institution would not be required to hold more capital after a
securitization than if the assets remained on balance sheet.
We believe that the calculations required are arbitrary. For
instance, the proposal provides no foundation for dividing the distance
between excess spread trapping levels and excess spread amortization
levels into four equal segments. Further, this calculation is
inconsistent among competitors, as excess spread is defined differently
across the industry. In addition, the excess spread levels at which
trapping begins are partially a function of initial spread account
deposits (i.e., a larger initial deposit will lower the initial trapping
level).
This calculation can also be inconsistent within an individual trust.
For example, we have a credit card securitization with excess spread
below 100 basis points that has a limited likelihood for early
amortization due to an amendment to the structure. Also, tracking
capital levels of each transaction, all with different structures and
varying levels of excess spread, is unduly cumbersome.
Finally, Fleet has successfully managed a revolving commercial loan
securitization program for five years, and believes there is no
rationale for a distinction between this program and a retail revolving
securitization.
Conclusion
From a regulatory capital perspective, we believe exclusion of ABCP
assets that are consolidated as a result of FIN 46 is correct. This
treatment should be extended to the tier 1 leverage ratio. We urge the
Agencies to delay the risk-based capital treatment of ABCP liquidity
facilities and securitizations of revolving retail credit facilities
with early amortization features until the implementation of the U.S.
version of Basel II.
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
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