To All Depository Institutions and Others Concerned in the Second Federal Reserve District:
In a supervisory letter (SR 04-9) dated June 15, 2004, the Federal Reserve Board, along with the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision (the Agencies) have revised the Agencies’ Uniform Agreement on the Classification of Assets and Appraisal of Securities Held by Banks and Thrifts (the Uniform Agreement). The revised Uniform Agreement amends examination procedures established in 1938 and revised in 1949 and 1979.
The Uniform Agreement sets forth procedures for classifying bank assets as substandard, doubtful, or loss. The classification of loans in the Uniform Agreement is not changed by the revised Uniform Agreement. Efforts are under way to develop appropriate revisions to the loan classification scheme for banks adopting the advanced internal ratings-based approach under the proposed Basel II capital framework.
The revised Uniform Agreement changes the classification standards applied to banks’ holdings of debt securities by:
- Eliminating automatic classification of sub-investment grade debt securities when a banking organization has developed an accurate, robust, and documented credit risk management framework to analyze its securities holdings.
- Conforming the Uniform Agreement to current generally accepted accounting principles by basing the recognition of depreciation on all available-for-sale securities on the bank's determination as to whether the impairment of the underlying securities is "temporary" or "other than temporary."
- Eliminating the preferential treatment given to defaulted municipal securities.
- Clarifying how examiners should address securities with two or more different ratings, split or partially rated securities, and non-rated debt securities.
- Identifying when examiners may diverge from conforming their ratings to those of the rating agencies.
- Addressing the treatment of Interagency Country Exposure Review Committee ratings.
SR Letter (04-9) 
Revised Uniform Agreement 
Contact:
John Heinze
Examining Officer
Credit Risk Department
john.heinze@ny.frb.org
