Federal Deposit
Insurance Corporation

Office of the Comptroller of the Currency
250 E Street, SW
Mail Stop 1-5
Washington, DC 20219
Re: Docket Number 05-17

Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve
20th Street and Constitution Ave., NW
Washington, DC 20551
Re: Docket No.OP-1240

Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
RIN number 3064-AC97

Re: Proposed Revisions to the Community Reinvestment Interagency Questions and Answers Regarding Community Reinvestment Office of the Comptroller of the Currency: Docket Number 05-17 Board of Governors of the Federal Reserve System: Docket Number OP-1240 Federal Deposit Insurance Corporation: RIN 3064--AC97

Dear Sir or Madam:

JPMorgan Chase Bank, N.A. and its bank affiliates (collectively, “JPMorgan Chase”) appreciate the opportunity to comment upon the Notice and Request for Comment (the "Proposal") regarding proposed changes to the Community Reinvestment Act ("CRA") Interagency Questions and Answers regarding Community Reinvestment (the "Questions and Answers") of the above-named agencies (the "Agencies"). JPMorgan Chase supports the Proposal and the Agencies' efforts in conforming the Questions and Answers to recent changes in the CRA regulation. JPMorgan Chase has a specific suggestion regarding the Proposal and also has two comments not incorporated in the Proposal that would provide more flexibility to banks in fulfilling their CRA responsibilities and would enable them to focus their resources on the CRA activities that they do best.

A. JPMorgan Chase Recommends a Three-Year Lag Period for Banks to Receive Consideration for Community Development Activities in Certain Areas

The Proposal suggests a one year lag period during which a bank may continue to receive consideration for activities in a disaster area for which the Federal or state designation has expired. Similarly, the Proposal suggests a one year lag period during which a bank may continue to receive consideration for activities in a distressed or underserved middle-income nonmetropolitan area that has been removed from the list. The rationale for the lag period is that some community development projects take an extended amount of time to arrange and fund, and the lag period will lessen the impact on a bank's investment planning and implementation.

JPMorgan Chase recommends a three-year lag period as the appropriate period of time for banks to receive CRA consideration for CRA-eligible activities. Developing CRA-eligible funds for equity investments and affordable housing projects for financing may well take longer than one year to implement, particularly in disaster areas where the infrastructure for creating these projects has been fragile or non-existent. It would be unfortunate for banks, which can play such an important role as the engines for financial recovery in distressed or underserved areas, not to receive CRA credit for these activities simply because they did not meet a one-year lag period cutoff.

B. The Agencies Should Give Greater Weight to Community Development Lending and Community Development Services in the CRA Examination

1. Community Development Lending

Community development real estate financing may be the most important lending today in low- and moderate-income ("LMI") communities. Banks play a big role in the success of developing LMI markets by working with communities, developers and government agencies to create financing packages that create financially successful and marketable properties. However, large banks that have developed talented teams of community development lenders and invested large amounts of capital into LMI communities question whether the Lending Test provides adequate recognition for this level of community reinvestment. JPMorgan Chase strongly recommends that the Agencies clarify the importance of community development lending, including how it is to be factored into a CRA rating. For example, such a clarification would explain that a significant amount of community development lending will raise a Satisfactory Lending Test rating to a rating of Outstanding. Agencies need to encourage banks to be involved with community development activities and they need to be clearer about the connection between CRA ratings and community development activities. Without such clarification and support, the future of community development lending is endangered.

2. Community Development Services

If community development lending does not appear to get as much weight as it deserves in the Lending Test, then community development services seem to receive only nominal weight in the Services Test. The entire Services Test counts for 25% of the overall CRA rating and includes both retail banking services and community development services. Great weight is placed on branch geographic distribution, the record of opening and closing branches and retail banking products for LMI customers. A bank’s performance on these retail banking criteria and others seems to determine its Services Test rating with a small amount of weight provided for community development services.

Because of this apparent small amount of weight, possibly as little as 5% of the overall CRA rating, banks are concerned that they are over-investing in terms of special community initiatives, including financial counseling and outreach to assist the financial needs of LMI communities through community partnerships. Banks are making enormous contributions in terms of community development services that receive scant credit in the CRA examination. Unlike retail banking services, community development services are pure expense items on a balance sheet. Rarely are there tangible financial returns on these investments of time, talent and expertise.

Again, JPMorgan Chase encourages the Agencies to clarify how community development services are weighted in the Services Test and to explain whether significant community development services, for example, can mitigate weaknesses in retail banking services in the market. Such guidance would help banks to optimally deploy their dedicated staff and this would go a long way towards helping banks manage their CRA responsibilities in a meaningful and efficient manner. Additionally, it is becoming increasingly more difficult to find bankers to serve on loan committees and eligible boards of directors because they are working longer hours and because their management may not understand how the activity benefits the bank’s CRA performance.

It would be very helpful if Agencies were more vocal about the importance of community development lending and community development services in building strong communities. It would also help if the Agencies were clear about the positive influence such lending and services would have on a bank’s CRA rating. Such leadership and encouragement will ensure that bankers will continue to make meaningful investments in community development lending and in the provision of community development services.

C. The Agencies Should Clarify that Securitizations of Certain Asset Classifications of Loans that Benefit LMI Consumers or Small Businesses meet the Eligibility Requirements of the Investment Test

Banks have long complained that there are very few sound and eligible CRA investment opportunities relative to the amount of investments that are expected of them based on their size and capacity. For many banks, the only eligible investments other than grants are mortgage-backed securities predominantly comprised of loans to LMI borrowers. JPMorgan Chase suggests that other types of securitizations that benefit LMI borrowers receive CRA credit similar to that already given for such investments in mortgage-backed securities.

The CRA Regulation defines community development as:

"(1) affordable housing (including multifamily rental housing) for low- or moderate-income individuals;

(2) community services targeted to low- or moderate-income individuals;

(3) activities that promote economic development by financing businesses or farms that meet the size eligibility standards of the Small Business Administration's Development Company or Small Business Investment Company programs (13 CFR 121.301) or have gross annual revenues of $1 million or less; or

(4) activities that revitalize or stabilize—

(i) low-or moderate-income geographies;
(ii) designated disaster areas; or
(iii) distressed or underserved non-metropolitan middle-income geographies designated by the Board, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency, based on—

(A) rates of poverty, unemployment, and population loss; or
(B) population size, density and dispersion. Activities revitalize and stabilize geographies designated based on population size, density, and dispersion if they help to meet essential community needs, including needs of low- and moderate-income individuals."

With respect to (2) above (community services targeted to LMI individuals), activities such as credit counseling to LMI individuals regarding financing an automobile or a student loan would count in the Services Test; and the definition clearly allows for investments in mortgage-backed securities that benefit LMI individuals (i.e. affordable housing (including multifamily rental housing) for LMI individuals). It is not clear, however, that an investment in a security comprised of non-shelter consumer products, such as student loans or auto loans that predominantly benefit LMI borrowers, would qualify as an eligible CRA investment. JPMorgan Chase believes that these investments should be considered under (2) as a community development service.

For households that do not have access to mass transportation, an automobile is the lifeline to holding down a job. For LMI households, independent transportation may be the difference between poverty and getting-by, between public assistance and self-sufficiency, between a downward spiral and a future in the middle class. Similar analogies can also be made for student lending where a young person may have his or her entire future depend on getting ahead by getting an education.

Since consumer lending is optional under the Lending Test and the definition of community development in the CRA Regulation does not seem to allow for investments in consumer loans (other than affordable housing) targeted to LMI individuals, consumer lending has nearly disappeared from the CRA. JPMorgan Chase requests that the Agencies consider this issue, recognizing that a broader market for CRA eligible investments would ultimately benefit LMI households.

JPMorgan Chase appreciates and opportunity to provide comments on these important issues and we would be happy to discuss them with you.

Sincerely yours,
Mark A. Willis