| Bank of Tokyo-Mitsubishi April
6, 2004
Mr. Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, D.C. 20429
Attention Comments
BY ELECTRONIC MAIL
Re: Proposed Rulemaking on Community Reinvestment Act Regulations
Dear Mr. Feldman:
Thank you for the opportunity to comment on the proposed changes to
the CRA regulations. I am writing on behalf of Bank of Tokyo-Mitsubishi
Trust Company, which was designated as a wholesale institution in 1996
pursuant to the current CRA regulations and as such, is subject to the
community development test.
Investments With regard to guidance that the
federal banking agencies anticipate developing concerning investments:
• Investments and loans from past examination periods that
remain on an institution's books for all or part of the current
examination period should be given full credit in an amount equal to
either the current outstanding commitment, or if no longer
outstanding, the average of the outstanding commitment over the entire
examination period. As it stands, the regulation provides a very
strong incentive to make only short-term investments and loans, while
many community development projects require longer-term, "patient"
funding. A short-term loan for a long-term project exposes the
borrower to the risk that it will not be able to obtain renewed
funding halfway through a project, or that a different rate
environment will make the funding unaffordable. A longer-term
investment or loan remains at work beyond its first one or two years,
and the bank continues to have a legally binding commitment to make
that funding available (and thus not available for any other purpose).
The bank also continues to be exposed to credit risk and, in the case
of fixed rates, which many community development borrowers prefer,
interest rate risk that increases the longer the term of the loan. In
general, banks tend to prefer shorter-term facilities, since interest
rate yield curves, tax positions, and other parameters effecting
investment decisions become more subject to uncertainty the further
into the future one projects; these factors are among those that
contribute to higher risk and higher interest rates for longer-term
loans. Thus, banks that meet the community credit need for longer-term
funding, despite limited availability of capital for all purposes,
including CRA, should be recognized, not discouraged, for doing so.
• The criterion of "innovative or complex" should not be
eliminated, but should be regarded as "extra credit" or as one
optional factor in assessing the criterion of "responsiveness to
community credit needs". Innovation can be important in formulating
community development initiatives and should be recognized where it
exists in view of the extra effort and risk that often accompanies it.
We believe this aspect has value notwithstanding that the "plain
vanilla" work of meeting community credit needs is of primary
importance. Complexity is necessary at times and the extra effort and
risk should be recognized, although it should not be an end in itself.
Loan Purchases vs. Loan Originations With regard to your
proposal to distinguish loan purchases from loan originations, we concur
with your intention not to weigh loan purchases less than loan
originations. Loan purchases free up capital that can be used to make
new originations and result in a more efficient, liquid market and lower
rates that directly benefit borrowers. Moreover, we do not see any
benefit in distinguishing purchases from originations, and certainly not
one that would justify the additional effort required to report the
information. Finally, if our above suggestion to fully recognize banks
for making long-term investments and loans were to go into effect, any
incentive for banks to sell their existing loans in order to purchase
new ones for CRA purposes and not for economic reasons would be
eliminated, together with the inefficiency and cost of the transactions.
Letters of Credit Although not proposed for comment, we
urge the agencies to consider clarifying that letters of credit that
meet the regulatory definition for community development should be
included in CRA assessments. Letters of credit and bank guarantees are
vital to projects' obtaining required financing and moving forward, and
make it possible for different investors to take part and thereby expand
the availability of capital. Because of the credit enhancement provided
by the L/C-issuing bank, other investors recognize that the risk has
been lowered to a level acceptable to them and are therefore willing to
invest and to accept a lower rate of interest. This results in a trend
towards more efficient, liquid markets and lower rates that directly
benefit borrowers. Like other credit facilities, letters of credit are
subject to the same level of risk analysis, expose the bank to credit
risk, and represent legally binding commitments of the bank to have
dedicated funding ready and available during the term of the facility
(and thus not available for any other purpose). Like regulatory
requirements for loans, banks must maintain risk reserves and count
letters of credit towards loans-to-one-borrower limitations. Because
letters of credit fulfill important community credit needs, they should
be formally included as a form of credit in the CRA regulations.
Disasters With regard to the definition of
"community development", activities that help revitalize and stabilize
areas after natural or man-made disasters (such as the September 11th
terrorist attacks) should be considered community development, even if
the activity is not located in, or targeted to, low- or moderate-income
communities. Depending on the severity and scope, disasters can cause
long-lasting harm to formerly vibrant economies, presenting them with
many of the challenges and obstacles routinely faced by low- and
moderate-income communities. In addition, low- and moderate-income
communities located within commuting distance, whose residents were
employed in or whose businesses served the disaster area, are also
directly affected. We encourage you to broaden this definition to
incorporate these concepts.
Thank you for your consideration of these matters.
Sincerely,
Bank of Tokyo-Mitsubishi
1251 Avenue of the Americas
New York, NY 10020
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