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Bank of Tokyo-Mitsubishi
The Bank of Tokyo-Mitsubishi, Ltd.
1251 Avenue of the Americas
Tel.
212-782-4630
Legal & Compliance
Office for the Americas
New York, NY 10020-1104
Fax. 212-782-6420
Robert E. Hand
General Counsel
Director of Public Affairs
April 6, 2004
Mr. Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, N. W.
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,
[Signature]
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