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FDIC Federal Register Citations Union Bank From: Greg Brown Sent: Monday, May 23, 2005 3:59 PM To: Comments Subject: FIL-22-2005/Classification of Commercial Credit Exposures We are a $220mm+ community bank. We are opposed to the proposed changes to current Loan Classification methodology. 1. The current methodology has served the banking system and the insurance fund very well, even through the turmoil of the '80s. It is well understood by bankers and examiners alike, and every bank's internal and/or external review system inevitably ties back to the existing classifications. 2. The existing methodology has been in place for over 65 years, during which time revisions have been necessary on only four occasions, one of which was the interagency adoption of a common definition of the "Special Mention" rating. No showing has been made of the necessity of now junking a proven system, in favor of an unproven one. 3. The Federal Register notice, in the Uniform Agreement, states that, "Institutions may incorporate this framework into their internal risk rating systems or, alternatively, they may map their internal rating system into the supervisory framework." a. This unnecessarily increases the burden on our loan operations departments, in that they will have to continue their current work of assessing lending risks, and then adapt those findings to the new methodology. b. Apparently no consideration has been given to state-chartered institutions, and the effect a Federal methodology which differs from their state's methodology will have on their overhead and examination processes. 4. The proposal seems to be aimed, at least partially, at providing for a formulaic procedure which presumably would be applied to the same extent at all examined institutions, hopefully eliminating " . . . differing applications of the current classification system by institutions and the agencies." The examination process, at least in the lending area of the bank, is by its very nature a subjective one. It will continue to be, at least as long as we have humans involved in the process. The proposed methodology will not eliminate that subjectivity. 5. Finally, there is the Law of Unintended Consequences, and we wonder what might unexpectedly occur either during the transition process, or after full implementation, that none of us can currently predict. Given the long range success of the existing systems, is this a risk we are willing to take? Greg B. Brown, Chairman and CEO Union Bank Benton, Arkansas |
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Last Updated 04/27/2006 | Regs@fdic.gov |