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Joint Press Release
August 27, 2012

Credit risk in the shared national credit
portfolio declines, but remains high
Board of Governors of the Federal Reserve System
Federal Deposit Insurance Corporation
Office of the Comptroller of the Currency
For immediate release

The credit quality of large loan commitments owned by U.S. banking
organizations, foreign banking organizations (FBOs), and nonbanks
improved in 2012 for the third consecutive year, according to the Shared
National Credits (SNC) Review for 2012. A loan commitment is the
obligation of a lender to make loans or issue letters of credit pursuant to
a formal loan agreement.
The volume of criticized loans remained high at $295 billion compared
with levels before the financial crisis, but declined 8.1 percent from
2011. A criticized loan is rated special mention, substandard, doubtful,
or loss.
Reasons for improvement in credit quality included better operating
performance among borrowers, debt restructurings, bankruptcy
resolutions, and ongoing access to bond and equity markets.
Despite this progress, poorly underwritten loans originated in 2006 and
2007 continued to adversely affect the SNC portfolio. While the overall
quality of underwriting of SNCs that were originated in 2011 was
significantly better than in 2007, some easing of standards was noted,
specifically in leveraged finance credits, especially compared with the



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relatively tighter standards present in 2009 and the latter half of 2008.
Refinancing risk eased during the past year as 37.1 percent of SNCs will
mature over the next three years compared with 63.4 percent for the
same time frame in the 2011 SNC Review.
The federal banking agencies expect banks and thrifts to originate
syndicated loans using prudential underwriting standards, regardless of
their intent to hold or sell them. SNCs that are poorly underwritten will be
subject to regulatory criticism or classification during annual SNC
reviews. The federal banking agencies expect to finalize revised
guidance on leveraged lending to form the basis of the agencies'
supervisory focus and review of supervised financial institutions involved
in leveraged lending.    
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 (62.4 percent) of
classified credits (rated substandard, doubtful, or loss).
In other highlights of the review:
Total SNC commitments increased 10.6 percent from the 2011
review to $2.79 trillion. Total SNC loans outstanding increased
$125 billion to $1.24 trillion, an increase of 11.2 percent.
Criticized assets represented 10.6 percent of the SNC portfolio,
compared with 12.7 percent in 2011.
Classified assets declined 8.8 percent to $196 billion in 2012 and
represented 7 percent of the portfolio, compared with 8.5 percent
in 2011.
Credits rated special mention, which exhibited potential weakness
and could result in further deterioration if uncorrected, was largely
unchanged at $99 billion in 2012, representing 3.6 percent of the
Adjusted for losses, nonaccrual loans declined to $81 billion from
$91 billion, an 11.1 percent reduction.
The distribution of credits across entities--U.S. banking
organizations, FBOs, and nonbanks--remained relatively
unchanged. U.S. banking organizations owned 43.2 percent of
total SNC loan commitments, FBOs owned 36.9 percent, and
nonbanks owned 19.8 percent. The share owned by nonbanks
declined for the second consecutive year. Nonbanks continued to
own a larger share of classified (62.4 percent) and nonaccrual
(66.4 percent) assets compared with their total share of the SNC
portfolio. Institutions insured by the Federal Deposit Insurance
Corporation owned 13.4 percent of classified assets and 9.5
percent of nonaccrual loans.
The media and telecommunications industry group led other
industry groups in criticized volume with $66 billion. Finance and
insurance followed with $34 billion, then utilities with $30
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 (28.3 percent),
media and telecommunications (24.6 percent), and transportation

services (22.7 percent). Each of these industry groups saw
declines in the share of criticized loans from a year ago.
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
In conducting the 2012 SNC Review, agencies reviewed $811 billion of
the $2.79 trillion credit commitments in the portfolio. The sample was
weighted toward noninvestment grade and criticized credits. The results
of the review are based on analyses prepared in the second quarter of
2012 using credit-related data provided by federally supervised
institutions as of December 31, 2011, and March 31, 2012.
Shared National Credits Program 2012 Review (PDF)
Industry Mapping File (PDF)

Media Contacts:
Federal Reserve Eric Kollig
Greg Hernandez 202-898-6984
Dean DeBuck

Last Update: August 27, 2012

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