Federal Deposit
Insurance Corporation

We are a bank with less than $250 million in assets, yet, as you are aware, all the policies and procedures related to loans, leases, security investments, must be created/revised, just like a larger bank. To implement this new classification program for commercial loans means changing/revising numerous policy and procedure statements previously approved by the Board: ALLL, Loan Grading and Classification, Real Estate Loan Standards, Asset Review, etc. etc. Time and, accordingly, expense, will be a larger percentage of our bottom line than some giant with IT departments(with sunk costs)and separate asset review departments, etc. We believe that the proposed duel system, using PD and LGD methodology is an improvement over the antiquated SM, Substandard and Doubtful method, however, given the expense associated with implementation, we, and others in our category, should be given the option of implementing. More to the point, we should be given the option of implementing when we can afford it. Given the make-up of our portfolio, 70% 1-4 family first mortgages, the costly implementation would only affect a small percentage of our footings, despite the fact that policy and procedures related to identification, measuring, monitoring and controlling risk affect all assets. Having said this, we applaud your steps in the right direction. It was always frustrating to have an examiner classify an asset as SM or substandard because it had traits of a below investment grade syndicated loan or bond, even through the collateral coverage was sometimes 2:1. By the way, if a syndicated loan, in the SNC program or not, has a Severity of Loss rating by Moody's or S&Ps, or say 1, and the loan is designated as Default under the new proposed guidelines, will that be taken into account when the examiner is rating the credit? Further, could we use that outside rating of 1 by S&Ps or Moody's as justification to internally rate the credit as PASS?

Here is a thought, give us a credit on our assessment for the expense of implementing this proposed guideline. Good luck.