via e-mail
November 3, 2003
Subject: Proposed Treatment of Expected and Unexpected Losses
Under the New Basel Capital
Mr. Jason Cave
Jason, I may be at the wire for comments on the proposed Unexpected
losses under the New Basel Capital program.
Having spent most of my Adult life cleaning up problem loans I would
make one statement on Unexpected Losses. It is not a subjective approach
to the market or what the market may do in a specified period of time.
Over the years when and examiner in their opinion have made us
reserve a pacific amount for a loan they thought their would be a loss
on we have not had a loss. Their opinion verses the lenders opinion the
lenders are ahead 5 to 1. I have had to do a pacific reserve for a loan
the examiner said we would have a loss of $40,000.00 on a $400,000.00
loan. Two years later another Bank took us out and the $40,000.00 we had
to take out of interest income was other income. Does that show a true
picture of Bank earning?
On our last examination we had ORE written up as substandard. The
examiner looked at the file the appraisal and made a decision. We sold
the property last week for a profit not a loss as the substandard would
indicate.
The $40,000.00 special reserve made up recapitalize the Bank which
would not have had to happen. It cost me interest on the money used to
recapitalize for 10 years. As you can tell I am not a fan of someone
looking at numbers and files and making a call that could be costly to
the Bank.
If they are going ahead with this program as it sounds they have made
up their minds. I would ask one thing. That any examiner making a Bank
write down a loan, or substandard the loan the Bank should have the
option of taking the examiner to look at what they are making the Bank
write down.
The Bank is penalized by the write down or substandard but the
examiner will look at you the next time and say I thought it was a
problem? If we are working together then lets both take the same hits.
The examine agency should have to pay the interest lost for any loan
written down or off that the Bank can make a legitimate sale or payoff
of the loan that was consider a problem by examiner. This makes it a two
way street not a one way where on side says, I must have been wrong and
goes ahead as if nothing happened. The Bank is the only looser in this
case. The examiner and agency should have something at steak also to
make it even.
Sincerely;
Roger D Durant
Vice Chairman
President & CEO
Horizon State Bank
814 N Walnut
PO Box 410
Cameron, MO 64429
Phone 816-632-7000
Cell Phone 816-632-8040
Fax 816-632-1859 rdclays@aol.com
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