Home > Regulation & Examinations >
Laws & Regulations > FDIC
Federal Register Citations
FDIC Federal Register Citations
State Bank of Long Island
From: Nicols, Bob [mailto:email@example.com]
Thank you for the opportunity to comment on the proposed "Classification
of Commercial Credit Exposures."
Our institution is a community bank with a loan portfolio of
approximately $800 million ($700 million Commercial). We are very much
opposed to the adoption of this proposal for the following reasons:
We believe the premise for the proposed change is factually incorrect.
The proposal states that "the [current] system dictates that transactions
with significantly different levels of expected loss receive the same
rating." If this statement were accurate, every banker in the country would
be lined up in protest at the doorsteps of their regulators. The experience
of our institution over many years, demonstrates that examiners do in fact
view collateral, guarantor strength and other factors in determining loan
ratings. While we may have differed with an examiner over the factual
valuation of a specific guarantor or piece of collateral, we have never seen
an examiner apply the same rating to two facilities to the same, inherently
weak borrower, where one is unsecured and the other well collateralized or
protected by a strong guarantor. Never!
The proposal further states that "the current classification system
focuses primarily on borrower weaknesses and the possibility of loss without
specifying how factors that mitigate the loss, such as collateral and
guarantees, should be considered in the rating assignment." However, the
present definition of "Substandard" relates to an asset that "is
inadequately protected by the current sound worth and paying capacity of the
obligor or by the collateral pledged." Further, the definition of
"Doubtful," references "the weaknesses inherent in one classified
substandard with the added characteristic that the weaknesses make
collection or liquidation in full, on the basis of currently known facts,
conditions, and values, highly questionable and improbable.
The proposal states that "institutions may use their ALLL impairment
analysis as a basis for their loss severity estimates. How can this be a
choice since GAAP requires that the reserves for these loans must be
calculated under FAS 114, and the resultant calculations are included in our
SEC filings? Since this is not a choice, but a mandate, what does the
proposal accomplish, except additional confusion and complexity?
With FDICIA, Sarbanes Oxley and The Patriot Act, to name just a few,
the banking industry has enough confusing and duplicative regulatory burdens
to deal with and we don't need yet another.
In conclusion, we believe the current system works well and should be
left intact. At most, a mere tweaking of the existing loan category
definitions or a revision of the examiner handbooks might be appropriate.
Robert J. Nicols
|Last Updated 06/02/2005||Regs@fdic.gov|