View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

Advanced

Search
About
the Fed

News
& Events

Monetary
Policy

Supervision
& Regulation

Payment
Systems

Economic
Research

Data

Consumers
& Communities

Board of Governors of the Federal Reserve System
The Federal Reserve, the central bank of the United States, provides the nation with a
safe, flexible, and stable monetary and financial system.

Home > News & Events > Press Releases

Joint Press Release
September 28, 2010

Credit Quality of the Shared National Credit
Portfolio Improved in 2010
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

The credit quality of large loan commitments owned by U.S. bank
organizations, foreign bank organizations (FBOs), and nonbanks
remained weak in 2010, but improved from 2009, according to the
Shared National Credits (SNCs) Review for 2010.
Although 18 percent of all SNCs were criticized, the volume of criticized
loans decreased more than 30 percent from record levels reported in
2009. The severity of classifications also improved, with $15 billion
classified as loss, compared with $53 billion in 2009. A loan commitment
is the obligation of a lender to make loans or issue letters of credit
pursuant to a formal loan agreement.
Reasons for improvement included improved borrower operating
performance, debt restructurings and bankruptcy resolutions, and
improved borrower access to bond and equity markets. Industries
contributing to improvement in credit quality included automotive,
materials and commodities, and finance and insurance. The volume of

poorly underwritten credits originated in 2006 and 2007 continued to
adversely affect the overall credit quality of the portfolio. Refinancing risk
within the portfolio is significant, with nearly 67 percent of criticized
assets maturing between 2012 and 2014.
While nonbank entities, such as securitization pools, hedge funds,
insurance companies, and pension funds, owned the smallest share of
commitments, they owned the largest volume and percentage in dollar
value of classified credits at $161 billion, or 52.9 percent of classified
credits.
Other findings include (definitions used in the report can be found on
page 4):
Total SNC commitments fell $362 billion to $2.5 trillion, a 12.6
percent decline. Total SNC loans outstanding fell $352 billion to
$1.2 trillion, a decline of 22.5 percent.
Criticized assets, which include assets rated special mention,
substandard, doubtful, and loss, declined to $448 billion from
$642 billion and represented 17.8 percent of the SNC portfolio,
compared with 22.3 percent in 2009.
Classified assets, which include assets rated substandard,
doubtful, and loss, declined to $305 billion from $447 billion in
2009 and represented 12.1 percent of the portfolio, compared
with 15.5 percent in 2009. Classified dollar volume fell 31.8
percent from 2009 levels.
Credits rated special mention, which exhibited potential weakness
and could result in further deterioration if uncorrected, declined to
$143 billion from $195 billion and represented 5.7 percent of the
portfolio, compared with 6.8 percent in 2009.
The severity of classifications improved, with the volume of credits
classified as doubtful and loss decreasing to $48 billion from $110
billion, a 56.4 percent decline. Nonaccrual loans declined to $151
billion from $172 billion. Adjusted for losses, nonaccrual loans
declined from $140 billion to $136 billion.
The distribution of credits across entity types—U.S. bank
organizations, FBOs, and nonbanks—remained relatively
unchanged. U.S. bank organizations owned 40.8 percent, FBOs
owned 37.9 percent, and nonbanks owned 21.3 percent of total
SNC loan commitments. Nonbanks continued to own a
disproportionate share of classified (52.9 percent) and nonaccrual
(57.8 percent) assets compared with their total share of the SNC
portfolio (21.3 percent). Federal Deposit Insurance Corporationinsured institutions owned only 22.7 percent of classified assets
and 18.1 percent of nonaccrual loans.
The media and telecommunications industry group led other
industries in criticized volume with $94 billion. Real estate and
construction followed with $60 billion, then finance and insurance
with $49 billion. These three industries represented the highest
shares of criticized credits, with 21.1 percent, 13.5 percent, and
11.0 percent of criticized credits in the portfolio.

Although improved, the dollar volume of criticized leveragedfinance loans remained high, with 62 percent of credits extended
to the 50 largest leveraged borrowers criticized.
SNC originations declined in 2009 compared with the previous
two years, and the small number of new loans made it difficult to
draw meaningful conclusions about the quality of new
underwriting. The portfolio contained a large volume of loans
committed to before mid-2007 that continued to adversely affect
the overall quality of the portfolio.
The SNC program was established in 1977 to provide an efficient and
consistent review and classification of SNCs, which includes 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 2010 SNC Review, agencies reviewed $1.0 trillion of
the $2.5 trillion credit commitments in the portfolio. The 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 2010 using credit-related data provided by federally
supervised institutions as of December 31, 2009, and March 31, 2010.

Shared National Credits Program
2010 Review
Industry Mapping File

Last Update: September 28, 2010

BOARD OF GOVERNORS
of the FEDERAL
RESERVE SYSTEM
About the Fed
News & Events
Monetary Policy
Supervision & Regulation

TOOLS AND
INFORMATION
Contact
Publications
Freedom of Information (FOIA)
Office of Inspector General

STAY CONNECTED

Payment Systems
Economic Research
Data
Consumers & Communities
Financial Stability

Budget & Performance | Audit
No FEAR Act
Español
Website Policies | Privacy
Program
Accessibility

BOARD OF GOVERNORS of the FEDERAL RESERVE SYSTEM
20th Street and Constitution Avenue N.W., Washington, DC 20551