From: John Parente [mailto:jparente@1stconstitutionbank.com]
Sent: Wednesday, June 22, 2005 3:26 PM
To: Comments
Subject: Interagency Proposal on the Classification of Commercial Credit
Exposures
June 22, 2005
Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Via Email: comments@fdic.gov
Re: Comments on Interagency Proposal on the Classification of Commercial
Credit Exposures
Dear Mr. Feldman:
As a community bank, our institution would be able to implement the
proposal
but it would encounter major changes to the existing Loan Policy and
significant training for management to understand the changes. Expenses for
the change would be hard to quantify, but the largest cost would probably be
in the lost time that management would need to implement the changes rather
than devote the time to their normal duties. Responsibilities and work do
not stop accruing when the time is shifted to understanding and implementing
the changes.
The examples are generally clear, but example 1 does not fully explain
why
the loan is included in criticized assets. The borrower may be marginal,
but the accounts receivable provide protection from loss, thus having a
remote risk of loss; however, this tends to be the different application for
asset-based lending. This just confuses the process and unnecessarily
complicates the process more then it needs to be. Why have special
treatment for asset-based lending when the whole concept of risk of loss is
primarily driven by collateral protection?
If implemented, guidance should be provided to community banks as to
policy
changes and rating systems to soften the burden of implementing the change.
Additional guidance as to how the new process will affect the determination
of an allowance for loan and lease losses is also necessary. Our reaction
is that adequate loan reserves may not be large as the current process
dictates, but is this something that regulators will allow under the
proposal? The regulators must understand that if this is a result of the
proposal then bankers should be allowed to benefit from it without industry
and regulatory criticism. Furthermore, it should be understood that bankers
would be accorded significant leeway from criticism at the first
examinations after implementation by federal and state examiners.
The optimal implementation date would be January 1, but under no
circumstances should it be between quarters.
Sincerely,
John R. Parente
Vice President
1st Constitution Bank
Cranbury, NJ 08512
