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BANK OF
AMERICA
July 19, 2004
Office of the Comptroller of the Currency
250 E Street, SW
Public Reference Room
Mail Stop 1-5
Washington, DC 20219
Attention: Docket No. 04-12
Ms. Jennifer J. Johnson
Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
Attention: Docket No. OP-1189
Mr. Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Attention: Comments/OES
Regulation Comments
Chief Counsel’s Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
Attention: No. 2004-27
Jonathan G. Katz
Secretary
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609
Attention: File No. S7-22-04
Ladies and Gentlemen:
Re: Proposed Interagency Statement on Sound Practices concerning
Complex Structured Finance Activities
Bank of America Corporation (“Bank of America”) appreciates the
opportunity to comment on the proposed Interagency Statement on Sound
Practices Concerning Complex Structured Finance Activities issued by the
Office of the Comptroller of the Currency, the Office of Thrift
Supervision, the Board of Governors of the Federal Reserve System (the
“Board”), the Federal Deposit Insurance Corporation and the Securities
and Exchange Commission (collectively, the “Agencies”). 69 Fed. Reg.
28980-28991 (23004) (the “Proposed Statement”). Bank of America is one
of the world’s leading financial services companies and is the sole
shareholder of Bank of America, N.A., one of the largest banks in the
United States. Through the nation’s largest financial services network,
Bank of America provides financial products and services to 30 million
households and two million businesses, and also provides international
corporate financial services for clients around the world.
Bank of America is a member of, and has actively participated in, the
formulation of comment letters on the Proposed Statement being submitted
by the Clearing House Association L.L.C. and the Bond Market
Association, the International Swaps and Derivatives Association, Inc.,
and the Securities Industry Association (the “Trade Associations”). We
fully support the comments of the Trade Associations and, accordingly,
we have limited our comments in this letter to those aspects of the
Proposed Statement that we believe deserve particular emphasis and
amplification.
We support the Agencies’ proposal to provide guidance to financial
institutions in developing internal controls and risk management
procedures to help identify and address the reputational, legal and
other risks associated with complex structured finance transactions (“CSFTs”).
We agree with the Agencies that financial institutions should have
effective policies and procedures in place to identify CSFTs that may
involve heightened reputational and legal risk, to provide for a level
of review that is commensurate with those risks, and to protect the
institutions from participating in illegal or questionable transactions.
We are concerned, however, about a number of aspects of the Proposed
Statement. First, particularly given the current legal and political
climate, the Proposed Statement could be improperly construed as
creating new causes of action or theories of civil liability on the part
of financial institutions to third parties. We believe that it is
crucial that the Proposed Statement be revised to clarify that it is not
intended to suggest any right of action or theory of liability that does
not currently exist; rather, it is intended to help financial
institutions conduct complex structured finance activities consistent
with safe and sound banking practices and to help financial institutions
protect themselves against unscrupulous customers. We join with the
Trade Associations in urging the Agencies to modify language in the
Proposed Statement that can have the effect of exacerbating this
concern. Specifically, we think the Proposed Statement must have an
explicit disclaimer of any intention to create rights of action or
theories of liability for third parties.
Second, with respect to regulatory compliance, we believe it is
essential that financial institutions not be made the policemen of the
securities disclosures of their issuer-customers. Accurate securities
disclosure and proper tax, accounting, and regulatory treatment are the
obligations of the issuer, its accountants and its counsel, and are
subject to review by the Securities and Exchange Commission. Financial
institutions lack the information, the access and the authority to
perform this role.
Third, it is essential that the Proposed Statement be revised to
recognize the differences among both institutions and transactions. The
Proposed Statement should articulate the principals upon which from the
foundation of appropriate policies, procedures and processes and
eliminate details that could result in the creation of an examiner’s
checklist, with a prescribed list of requirements for all institutions
and all transactions. The Proposed Statement should be revised to
explicitly acknowledge that financial institutions will need flexibility
as they implement appropriate policies, procedures and processes, and it
should modify or delete certain language that could encourage a
checklist approach. The Agencies should also explicitly acknowledge
their willingness to review, evaluate and inform financial institutions
as to the adequacy of the policies, procedures and processes they
develop to address the issues faced by each such institutions, including
the differing roles undertaken in a particular transaction (e.g., agent
versus syndicated member) and the differing issues presented by such
transactions (e.g., cross-border transactions involving non-U.S. tax
laws and non-U.S. GAAP accounting standards).
Fourth, we believe that several key revisions should be made in the
Proposed Statement to avoid creating unattainable high standards, (such
as “complete and accurate” information regarding accounting treatment),
unreasonable responsibilities (such as a requirement of “independent
review”) and unwarranted exposures (such as assertion of “assumption of
risk”). Financial institutions should, instead, be expected to adopt
policies, procedures and processes that balance risk management
considerations, reputation risk and business practicalities, consistent
with safe and sound banking considerations based on reasonable
investigation.
In addition, the Proposed Statement should be framed as so to not put
U.S. financial institutions at a competitive disadvantage vis-à-vis
other financial institutions that are not subject to the Agencies’
jurisdiction. We urge the Agencies to make every effort to harmonize the
Proposed Guidance with existing international standards and in
coordination with their international counterparts to minimize
competitive disparities.
We believe the documentation practices in the Proposed Guidance
exceed legitimate business needs and applicable legal standards. Far
from representing good “risk management practices” for the institution,
the proposed standards appear more likely to chill open and robust
discussion with customers. We are also concerned about the wisdom (and
the burden) of requiring institutions to generate and retain
documentation of the rejection of specific transactions – regardless of
the level at which the determination is made. Rejection does not require
comprehensive evaluation of relevant considerations. As a result, a
determination not to proceed with a transaction is more likely than not
to be made without comprehensive consideration of potentially relevant
factors and, as a result, relevant records would not be complete and
would not constitute a reliable resource for review of deliberations and
considerations.
Finally, we are concerned that certain statements in the Proposed
Statement impose an unduly high standard (i.e., “ultimate
responsibility”) on the board of directors of financial institutions and
may discourage qualified individuals from serving as directors. The
board of directors should be able to delegate responsibility to monitor
the financial institutions compliance with its policies, procedures and
processes for CSFT’s to senior management subject to an annual reporting
requirement to the board or an appropriate board committee.
We believe these are the major concerns presented by the Proposed
Statement. Bank of America appreciates the opportunity to submit these
comments and would be pleased to discuss any of the points raised in
this letter in more detail. Should you have any questions, please
contact the undersigned at (704) 388-6724.
Sincerely,
John H. Huffstutler
Associate General Counsel
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