The guidelines from the FDIC, the Federal Reserve Board, the Office of the Comptroller of the Currency and the Office of Thrift Supervision represent the agencies' longstanding expectations regarding an institution's management of asset quality and earnings. The standards are designed to prompt a depository institution to take steps that will help identify emerging problems in the institution. Moreover, by adopting the standards as guidelines instead of as regulations, these qualitative standards provide an institution with sufficient flexibility to adopt practices that are consistent with safe and sound banking and that are appropriate to the institution's size and the nature and scope of its operations.

Institutions that fail to satisfy the guidelines may be required to submit safety and soundness compliance plans. Institutions that do not submit or implement an accepted compliance plan will be subject to enforcement orders. However, since the standards do not represent a change in the agencies' policies, well-managed institutions--which are the majority of institutions--generally should find it unnecessary to modify their operations to satisfy the guidelines.

The new guidelines for asset quality and earnings are attached. The guidelines take effect on October 1, 1996. If you have any questions, please contact your Division of Supervision regional office on the attached list.

Attachments

Distribution: FDIC-Supervised Banks (Commercial and Savings)

Note: Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information Center, 801 17th Street, NW, Room 100, Washington, DC 20434 ((703) 562-2200).