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FDIC Federal Register Citations

Sent: Thursday, May 05, 2005 4:56 PM
To: Comments
Subject: Interagency Proposal on the Classification of Commercial Credit Exposures

I was a state bank examiner nine years and have been in loan review for banks for 20 years.
I, along with many bankers I have talked to, am opposed to this proposal because the training costs and confusion to lenders will outweigh the minimal benefits.

The current rating system of Special Mention, Substandard, Doubtful and Loss has worked well for many generations, and bankers pretty well know how a given loan should be classified and have grown accustomed to how examiners classify loans.
It appears from a review of the definitions that Marginal is very much like Special Mention, Weak is the same as Substandard and default is like doubtful/loss. Therefore, I do not believe a change in “borrower rating” terminology would be beneficial.

With respect to “facility rating,” if we have a loan with loss, we actually charge off our best estimate of the loss.
We don’t “reserve” for it. The categories of “loss severity estimates” may be appropriate for very large banks which may reserve for, rather than charging off, loss, but these categories are totally unnecessary in our bank, a $375 Million bank.

This proposal is a step backwards and will waste the time of bankers.

I would also like to point out that the proposed system of classification applies only to “commercial credits.” A separate classification system for consumer credits would still be governed by the Uniform Retail Credit Classification and Account Management Policy Statement from June of 2000. Therefore, in classifying our credits and preparing our watch list, we will have one set of rules for commercial loans and another set of rules for consumer loans.

We can certainly handle whatever final rules come out, but I believe this proposal did not adequately consider the training burden it would place on small community banks. This system may be fine for a $100 billion bank, but for most banks regulated by the FDIC I believe the current system is working well. s/ Thomas K. Buxton

Last Updated 05/25/2005

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