via e-mail
From: Joseph L. Flatley
Sent: Monday, November 03, 2003 4:09 PM
To: Comments
Subject: Proposed Risk-Based Capital Rules (Basel)
October 31, 2003
Robert E. Feldman, Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
RE: Proposed Risk-Based Capital Rules
Dear Mr. Feldman:
The Massachusetts Housing Investment
Corporation (MHIC) is a non-profit dedicated to financing quality
affordable housing and community development throughout Massachusetts.
MHIC is a Community Development Financial Institution (CDFI) with 25
corporate investors including banks, insurance companies and
government-sponsored enterprises. Since MHIC began operations in 1990,
the corporation has provided more than $650 million to finance over
9,500 housing units in 220 projects.
MHIC appreciates the opportunity to
comment on the proposed Risk-Based Capital Rules, commonly known as the
Basel proposals.
MHIC strongly supports the provision of
the proposed special rule for “Legislated Program Equity Exposures” that
preserves the current capital charge on most equity investments made
under legislated programs that involve government oversight. These
include public welfare investments made by banks in compliance with
Community Reinvestment Act (CRA) Regulations, such as investments in
CDFIs and Low Income Housing Tax Credits (LIHTC). CRA investments by
banks are crucial sources of private sector financing that serve
economically distressed communities by providing credit, capital and
financial services for affordable housing and other community
development needs. In addition, investments by banks and other
corporations account for about 98 percent of the equity capital
generated by the LIHTC, which produces virtually all of the country’s
affordable rental housing and 40% of all multifamily housing starts.
It is especially important that these
provisions recognize the fact that these investments not only serve
important policy goals but also represent very low risks for the
investors. MHIC’s track record over the last 13 years is indicative of
that risk profile. With over $650 million in financing, MHIC has
experienced zero loan losses – a record that any conventional commercial
lender would envy. National statistics on investments in the Low Income
Housing Credit reflect the same low risks – with credit risk
approximately 100 times lower than commercial real estate.
As you can see, therefore, treating these
CRA-related investments differently makes not only good public policy
sense but also good business sense.
It is on that basis that we are deeply
troubled with the proposed “materiality” test. Under the provision as
currently drafted, such CRA investments would be included in the
materiality test for banks that have more than 10% of (Tier 1 plus Tier
2) capital in ALL equity investments. As proposed, this provision would
have the unintended consequence of discouraging banks with substantial
investments in CDFIs and housing tax credit projects from maintaining
the same level of CRA investments so as not to trigger higher capital
charges on non-CRA investments. In point of fact, we have heard just
this argument from some of the largest national investors in CDFIs and
housing credits.
Given the very different risk and return
profiles of CRA investments compared with non-CRA investments, we urge
you to exclude CRA-related investments from the materiality test
calculation to ensure the continued flow of equity capital for meeting
the affordable housing needs of our nation’s poorest families and for
building sustainable communities.
Sincerely,
JOSEPH L. FLATLEY
President and CEO
cc: Ms. Jennifer J. Johnson, Board of
Governors of the Federal Reserve System
The Honorable John D. Hawke, Jr., Office of the Comptroller of the
Currency
Chief Counsel’s Office, Office of Thrift Supervision
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