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Home > News & Events > Press Releases

Joint Press Release
August 25, 2011

Credit quality of large loan commitments
improves for second consecutive year
Board of Governors of the Federal Reserve System
Federal Deposit Insurance Corporation
Office of the Comptroller of the Currency
For immediate release
Share

The credit quality of large loan commitments owned by U.S. banking
organizations, foreign banking organizations (FBOs), and nonbanks
improved in 2011 for the second consecutive year, according to the
Shared National Credits (SNC) Review for 2011. A loan commitment is
the obligation of a lender to make loans or issue letters of credit
pursuant to a formal loan agreement.
Total criticized loans declined more than 28 percent to $321 billion in
2011, although the percentage of criticized assets remained high
compared to pre-financial crisis levels. A criticized loan is rated special
mention, substandard, doubtful, or loss. Loans rated as doubtful or loss-the two weakest categories--fell 50 percent to $24 billion in 2011.
Reasons for improvement in credit quality included better operating
performance among borrowers, debt restructurings, bankruptcy
resolutions, and ongoing access to bond and equity markets. Industries
that led the improvement in credit quality were real estate and
construction, media and telecommunications, and finance and
insurance.
Despite this progress, poorly underwritten loans originated in 2006 and

2007 continued to adversely affect the SNC portfolio. Approximately 60
percent of criticized assets were originated in these years. Refinancing
risk remained elevated as nearly $2 trillion, or 78 percent of the SNC
portfolio, matures by the end of 2014. Of this maturing amount, $204
billion was criticized.
Although nonbank entities, such as securitization pools, hedge funds,
insurance companies, and pension funds, owned the smallest share of
loan commitments, they owned the largest share (58 percent) of
classified credits (rated substandard, doubtful, or loss).
In other highlights of the review:
Total SNC commitments increased less than 1 percent from the
2010 review. Total SNC loans outstanding fell $93 billion to $1.1
trillion, a decline of 8 percent.
Criticized assets represented 13 percent of the SNC portfolio,
compared with 18 percent in 2010.
Classified assets declined 30 percent to $215 billion in 2011 and
represented 9 percent of the portfolio, compared with 12 percent
in 2010.
Credits rated special mention, which exhibited potential weakness
and could result in further deterioration if uncorrected, declined 25
percent to $106 billion in 2011 and represented 4 percent of the
portfolio, compared with 6 percent in 2010.
Nonaccruals declined to $101 billion from $151 billion. Adjusted
for losses, nonaccrual loans declined to $92 billion from $137
billion, a 33 percent reduction.
The distribution of credits across entities--U.S. banking
organizations, FBOs, and nonbanks--remained relatively
unchanged. U.S. banking organizations owned 42 percent of total
SNC loan commitments, FBOs owned 38 percent, and nonbanks
owned 20 percent. The share owned by nonbanks declined for
the first time since 2001. Nonbanks continued to own a larger
share of classified (58 percent) and nonaccrual (60 percent)
assets compared with their total share of the SNC portfolio.
Institutions insured by the Federal Deposit Insurance Corporation
owned only 17 percent of classified assets and 15 percent of
nonaccrual loans.
The media and telecommunications industry group led other
industry groups in criticized volume with $70 billion. Finance and
insurance followed with $37 billion, then real estate and
construction with $35 billion. Although these groups had the
largest dollar volume of criticized loans, the three groups with the
highest percentage of criticized loans were entertainment and
recreation, media and telecommunications, and commercial
services.
The 2011 review indicated that the number of credits originated in
2010 rose dramatically compared to 2009 and 2008. Although the
overall quality of underwriting in 2010 was significantly better than
in 2007, some easing of standards was noted compared to the
relatively tighter standards in 2009 and the latter half of 2008.

Federal banking agencies expect banks and thrifts to underwrite
syndicated loans using prudential underwriting standards, regardless of
the intent to hold or sell the loans. Poorly underwritten syndicated loan
transactions are subject to regulatory criticism.
The SNC program was established in 1977 to provide an efficient and
consistent review and analysis of SNCs. A SNC is any loan 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 loan
commitments are also shared with FBOs and nonbanks, including
securitization pools, hedge funds, insurance companies, and pension
funds.
In conducting the 2011 SNC Review, agencies reviewed $910 billion of
the $2.5 trillion credit commitments in the portfolio. The sample was
weighted toward non-investment grade and criticized credits. The results
of the review are based on analyses prepared in the second quarter of
2011 using credit-related data provided by federally supervised
institutions as of December 31, 2010, and March 31, 2011.
Attachments
Shared National Credits Program 2011 Review (PDF)
Industry Mapping File (PDF)

Media Contacts:
Federal Reserve
Board
FDIC
OCC

Barbara
Hagenbaugh

(202) 4522955
(202) 898Greg Hernandez
6984
(202) 874William Ruberry
5964

Last Update: August 25, 2011

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