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FDIC Federal Register Citations
From: Dennis Tiffany [mailto:Dennis.Tiffany@idob.state.ia.us]
Sent: Friday, June 03, 2005 3:33 PM
To: Comments
Subject: Interagency Proposal on the Classification of Commercial Credit
Exposures
When reading these comments, it is important to understand that this
information is presented from a regulators point of view. It will appear
that some of the comments are not directly related to the question being
asked.
The agencies intend to implement this framework for all sizes of
institutions. Could your institution implement the approach?
Financial institutions just like businesses differ tremendously in size and
structure. A two-dimensional internal risk rating systems is inappropriate
for many institutions. Personnel expense is a very large part of the banks
overhead expenses. I do not believe that there will be interest in taking
the time and manpower to implement the two-dimensional internal credit
rating system. If correct, credit ratings would only comply with federal
regulations, thus eliminating the current system of checks and balances
that exist between bank management and regulators. Unless a bank is doing
poor in rating their portfolio, differences should exist. Poor
interpretations by management of their portfolio will not change under this
system.
Leveraging-off managements determinations is a move towards rubber stamp
analysis. A vast majority of lenders accurately understand and management
their credits well. It is not broken, so lets do not fix it.
The statement 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 is incorrect for us. We are as
consistent as possible and have guidelines for collateral and guarantees.
Correcting this situation could easily be done without completely
overhauling the system.
Credit is not something you can completely identify by facts, because every
credit has values and assumptions that either vary or just plane cannot be
identified. Rating differences should exist between an institution and its
regulators. Bank management is in a position to apply known factors about a
credit that cannot be put into mathematical values. Not allowing the
application of all factors it a situation would be an injustice to the
institution. The statement The current classification system does not
adequately address how, when rating an asset, to reconcile the risk of the
borrowers default with the estimated loss severity of the particular
facility is correct, but impossible to apply. Attempting to use standard
assumptions only allows for consistency, not accuracy. While establishing a
method for consistency, you are also eliminating the inputs of human
determination in establishing differences in business entities and human
impact.
Dennis Tiffany
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