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Judicial & Regulatory Alert
CFA Submits
Comments on OCC Commercial Credit Classification
Proposal
The Commercial Finance Association,
along with approximately 200 other organizations
and individuals, has submitted comments in response
to a proposal by federal banking regulators to
revise the classification system for commercial
credits.
In March, 2005, the Office of the Comptroller
of the Currency, in conjunction with the Federal
Reserve and the Office of Thrift Supervision,
issued a proposal to revamp the classifications
used in the Shared National Credit System. The
proposed rules would replace the existing commercial
loan classification categories with a two-dimensional
framework that measures the risk of a borrower
defaulting, i.e. the borrower rating; and focuses
on the loss severity the lending institution
would likely incur in the event of the borrower’s
default, i.e. the facility rating. Facility ratings
will be required only for those borrowers who
receive a default rating.
In its comments submitted
to the OCC, CFA noted that the overall concept
proposed by
the OCC is a definite improvement over the
current one-dimensional system regulatory rating
system because the two-dimensional system will
provide a more accurate and consistent assessment
of the classification of commercial credits.
For the complete text of CFA’s comments
click
here.
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