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Home > News & Events > Press Releases

Joint Press Release
September 24, 2009

Credit Quality Declines in Annual Shared
National Credits Review
Board of Governors of the Federal Reserve System
Federal Deposit Insurance Corporation
Office of the Comptroller of the Currency
Office of Thrift Supervision
For immediate release
Share

Credit quality declined sharply for loan commitments of $20 million or
more held by multiple federally supervised institutions, according to the
32nd annual review of Shared National Credits (SNC).
The credit risk of these large loan commitments was shared among U.S.
bank organizations, foreign bank organizations (FBO), and nonbanks
such as securitization pools, hedge funds, insurance companies, and
pension funds. Credit quality deteriorated across all entities, but
nonbanks held 47 percent of classified assets in the SNC portfolio,
despite making up only 21.2 percent of the SNC portfolio. U.S. bank
organizations held 30.2 percent of the classified assets and made up
40.8 percent of the SNC portfolio.
The 2009 review covered 8,955 credits totaling $2.9 trillion extended to
approximately 5,900 borrowers. Loans were reviewed and categorized
by the severity of their risk--special mention, substandard, doubtful, or
loss--in order of increasing severity. The lowest risk loans, special
mention, had potential weaknesses that deserve management attention

to prevent further deterioration at the time of review. The most severe
category of loans, loss, includes loans that were considered
uncollectible.
Key findings were:
Criticized assets, which included SNCs classified as special
mention, substandard, doubtful, or loss, reached $642 billion, up
from $373 billion last year, and represented 22.3 percent of the
SNC portfolio compared with 13.4 percent in 2008.
SNC commitment volume increased $92 billion, or 3.3 percent,
while the number of credits remained virtually unchanged.
Classified assets, which included SNCs classified as
substandard, doubtful, or loss, rose to $447 billion from $163
billion and represented 15.5 percent of the SNC portfolio,
compared with 5.8 percent in 2008. Classified dollar volume
increased 174 percent from a year ago.
Special mention assets, which exhibited potential weakness and
could result in further deterioration if uncorrected, declined to
$195 billion from $210 billion and represented 6.8 percent of the
SNC portfolio, compared with 7.5 percent in 2008.
The severity of criticism increased with the volume of SNCs
classified as doubtful and loss rising to $110 billion, up from $8
billion in 2008. Loans in nonaccrual status also increased nearly
eight times to $172 billion from $22 billion. Nonaccrual loans
included $32 billion in credits classified as loss and $56 billion
classified doubtful.
The distribution of credits across U.S. bank organizations, foreign
bank organizations, and nonbanks remained relatively
unchanged. U.S. bank organizations held 40.8 percent, while
FBOs and nonbanks held 38 percent and 21.2 percent,
respectively. Nonbanks continued to hold a disproportionate
share of classified assets. Nonbanks held 47 percent of classified
assets and 52 percent of nonaccrual loans. Federal Deposit
Insurance Corporation-insured institutions held 24.2 percent of
classified assets and 22.7 percent of nonaccrual loans.
Criticized volume was led by the Media and Telecom industry
group with $112 billion, Finance and Insurance with $76 billion,
and Real Estate and Construction with $72 billion. These three
groups also represented the highest shares of criticized credits
with 17.3 percent, 11.7 percent, and 11.2 percent of criticized
credits in the SNC portfolio, respectively.
The review identified significant deterioration in credit quality of
leveraged finance credits, with these loans representing more
than 40 percent of the dollar volume of total criticized assets.
About 72 percent of the dollar volume of the 50 largest leveraged
finance SNCs were criticized, which represents one-third of all
criticized assets.
Underwriting standards in 2008 improved from prior years, with
examiners identifying fewer loans with structurally weak
underwriting characteristics compared to credits written in 2007
and 2006. However, the SNC portfolio contained loans with

structurally weak underwriting characteristics that were committed
before mid-2007 that contributed significantly to the increase in
criticized assets.
The SNC program was established in 1977 to provide an efficient and
consistent review and classification of SNC, which includes any loan and
or/formal loan commitment, and any asset such as real estate, stocks,
notes, bonds, and debentures taken as debts previously contracted,
extended to borrowers by a federally supervised institution, its
subsidiaries, and affiliates that aggregates to $20 million or more and is
shared by three or more unaffiliated supervised institutions. Many of
these large loan commitments are also shared with foreign banking
organizations and nonbanks, including securitization pools, hedge funds,
insurance companies, and pension funds.
In conducting the 2009 SNC review, agencies reviewed $1.2 trillion of
the $2.9 trillion credit commitments in the SNC portfolio, or 41 percent of
the credits by dollar volume. The 2009 SNC sample was heavily
weighted toward non-investment grade and criticized credits. The results
of the review are based on analyses prepared in the second quarter of
2009 using credit-related data provided by federally supervised
institutions as of December 31, 2008, and March 31, 2009.

Shared National Credits Program
2009 Review
Industry Mapping File

Media Contacts:
Federal Reserve
Board
FDIC
OCC
OTS

Barbara
Hagenbaugh

202-4522955
202-898Greg Hernandez
6992
202-874Bryan Hubbard
5770
202-906William Ruberry
6677

Last Update: September 24, 2009

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