Comments Requested on Proposed Classification of Commercial Credit Exposures
March 29, 2005
Circular No. 11694

To All Depository Institutions and Others
Concerned in the Second Federal Reserve District:

The Federal Reserve Board, Federal Insurance Deposit Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision (Agencies) have requested comment on proposed changes to the supervisory framework for the classification of commercial credit exposures.

The proposed guidance would replace the current commercial loan classification system categories "special mention," "substandard," and "doubtful" with a two-dimensional framework. The two-dimensional rating system has one dimension that measures the risk of the borrower defaulting (borrower rating) and a second focused on the loss severity the institution would likely incur in the event of the borrower's default (facility rating). Facility ratings would be required only for those borrowers rated default, typically a very small proportion of all commercial exposures.

The proposed framework would increase consistency among the agencies in assessing the credit risk in an institution's commercial loan portfolio. It also more closely aligns the determination of a facility's accrual status with an institution's allowance for loan and lease loss methodology and rating assessment process.

Comments on the proposed guidance must be received by June 30, 2005. Details on how to submit comments are available in the Federal Register notice.

Joint press release OFFSITE 
Interagency Federal Register notice OFFSITE pdf

Caroline Frawley
Vice President
Credit Rick Department