Federal Deposit
Insurance 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