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OCC BULLETIN 1998-21
To: Chief Executive Officers of all National Banks, Department and Division Heads, and all Examining Personnel

Description: SNC Program Description and Guidelines

PURPOSE

This circular describes the Shared National Credit (SNC) Program and the manner in which it is administered by the Office of the Comptroller of the Currency (OCC). OCC Bulletin 95-9 dated February 14, 1995, is rescinded and replaced by this issuance.

POLICY

The SNC Program is governed by an interagency agreement among the three federal bank regulatory agencies - the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), and the OCC. The OCC's policies and procedures for administering the SNC program are outlined in PPM 5100-2 (Revised), "Shared National Credit Program," dated May 5, 1998. The PPM delineates the roles and responsibilities of the Supervision Support Department, the Large Bank Department, and the OCC's six districts. The OCC's policies for the analysis and classification of individual credits are set forth in section 215 of the Comptroller's Handbook for National Bank Examiners.

BACKGROUND

The SNC Program is an interagency program designed to review and assess risk in the largest and most complex credits shared by multiple financial institutions. The program originated in 1975 and was expanded to an interagency basis in 1977. The program provides uniform treatment of and increases efficiencies in SNC risk analysis and classification.

DEFINITION

Shared National Credit: Currently, a SNC is defined as any loan(s) and/or formal loan commitment(s) extended to a borrower by a supervised institution or any of its subsidiaries and affiliates which aggregates $20 million or more and, 1) is shared by two or more institutions under a formal lending agreement; or, 2) a portion of which is sold to one or more institution(s), with the purchasing institution(s) assuming its pro rata share of the credit risk. Effective December 31, 1998, the definition will change to include only those credits that are shared by three or more institutions under a formal lending agreement, or a portion of which is sold to two or more institutions, with the purchasing institutions assuming their pro-rata share of the credit risk.

SNCs are drawn from all loans administered by a domestic office of a supervised institution. This includes all domestic commercial and real estate loans and all international loans to borrowers in the private sector, denominated in any currency. It also includes assets taken for debts previously contracted such as other real estate owned, closely held or nonmarketable stocks, notes, bonds, debentures, and other large credits designated by the supervisory agencies as meeting the general intent or purpose of the SNC Program. The definition encompasses acceptances; commercial letters of credit; standby letters of credit or similar bonds or guarantees; note issuance facilities; revolving underwriting facilities; lease financing receivables; and Eurodollar facilities, syndications, and similar extensions or commitments.

A supervised institution is one that is subject to supervision by one of the federal bank regulatory agencies. Supervised institutions include all FDIC-insured banks, their branches, subsidiaries, and affiliates. They also include bank holding companies and their nonbank subsidiaries and affiliates and federally and state-licensed branches and agencies of foreign banks.

Reporting Requirements: SNCs are reported by the agent bank or an institution acting as administrative agent. Each U.S. branch or agency of a foreign bank should report SNCs for which it is the responsible agent. "Unagented" credits, including those originated or administered by an entity other than a supervised institution, should be reported by each participant. Unagented credits are those governed by a formal loan agreement, but for which an agent is not identified. The OCC will determine how and where these credits will be reviewed. If there is no agent bank but one institution acts in a lead capacity, that institution should report the credit.

All loans or formal loan commitments, regardless of size, that are governed by a common loan agreement are combined to meet the $20 million threshold and should be reported as separate credits (i.e., a revolver and a term loan should be reported as two credits). Individual loans or formal loan commitments less than $20 million in size that are governed by separate loan agreements are not combined to meet the $20 million threshold, unless the participants under both loan agreements are identical. Loans or commitments adversely rated during the previous SNC review that have been reduced to less than $20 million (but more than $10 million) should be reported as SNCs.

Certain financing arrangements are not included in the SNC program:

  • Credits shared solely between affiliated supervised institutions;
  • Private sector loans that are 100 percent guaranteed by a sovereign entity;
  • International loans or commitments administered in a foreign office;
  • Direct loans to sovereign borrowers; and,
  • Credits below $10 million, even if previously adversely rated under the SNC program.

Arrangements known as "club credits" and collateral pooling agreements are not treated as SNCs. A "club credit" is one in which the borrower negotiates individual loan agreements with multiple lenders. Generally, the terms are similar but not identical. Collateral pooling agreements vary in detail, but involve sharing a "pool" of collateral among participating lenders.

Further instructions on specific assets which should be included in the SNC program accompany the annual request letter to participating banks. A national bank that is uncertain about whether to report a credit as a SNC, should report it. OCC reserves the right to review any credits it believes may help it fulfill the program's objectives.

RESPONSIBILITIES

The Deputy Comptroller for Supervision Support establishes policies and procedures for the administration of the SNC Program and plans and oversees the annual SNC review cycle.

Deputy Comptrollers for Large Banks and District Deputy Comptrollers assign appropriate personnel to participate in the SNC review and budget funds to cover the SNC travel expenses of their examiners.

SNC Program Manager establishes procedures for the administration of the SNC Program consistent with the interagency agreement and OCC's mission, goals, and objectives. Through the SNC Analysts and Large Bank EICs, the SNC program manager plans and oversees the annual SNC review cycle and administers the SNC Appeals Process, in accordance with established OCC policy.

SNC Analysts work closely with the large bank EICs and district personnel to coordinate the annual planning process and to facilitate the administration of reviews at SNC sites. They serve as members of the SNC management team and provide liaison with FRB and FDIC SNC contacts for their assigned districts.

Resident Examiners-In-Charge (EICs) are responsible for the examination of their assigned banks and for all the bank's SNC activities. Review location supervisors are responsible for large bank locations other than the head office or for SNC reviews at banks that do not have resident EICs. They manage one or more teams of examiners and report to the EIC or his/ her designee. These positions are usually filled by examiners with significant SNC voting experience.

Voters review file work, conduct discussions with bank account officers, assign the appropriate disposition of each assigned SNC, and prepare final write-ups. Voters are usually commissioned NBEs with significant experience in evaluating credit risk of the larger and more complex credits at large banks. In many locations, voters read their own credit files. Some locations utilize separate file readers who do not vote on the credit.

PROCEDURE

Normally, credits are reviewed in the lead or agent institution, with exceptions made by representatives of the primary federal regulator. For credits having a national bank and a state bank as co-agents, the determination of the appropriate review location is made by representatives of the primary federal regulators. Credits agented by supervised institutions located in a city that has less than five SNCs are usually reviewed at the largest participating supervised institution which already is a SNC review location. The OCC supervises the review of SNCs where the lead or agent is a national bank; the FRB carries out the examination of SNCs led or agented by state member banks; and the FDIC is primarily responsible for credits at state nonmember banks.

Review Teams: Review teams, which may consist of three examiners, analyze and rate credits. For a particular institution, the EIC or review location supervisor is an examiner representing the primary federal regulator. To the extent possible, each team will include at least one examiner from any other participating agency. Team participation by the third agency is accommodated on an ad hoc basis. Teams at the largest institutions should include representatives from all three agencies. Participating agencies must be consulted any time the primary federal regulator is considering a change in a credit disposition decided by an interagency review team.

Review Cycle: Review dates are established by mutual agreement of the Interagency SNC Committee in accordance with the interagency agreement. The calendar for the cycle is:

  • Mid December - The interagency request for SNC information as of December 31 is mailed to banks.
  • Late January - Information from the banks is due in the Washington office, where it is processed for distribution to the review teams.
  • Late March - Materials are forwarded to the SNC EIC for the May review.
  • Late April - Reporting banks update the information to March 31 reflecting new facilities, pay-offs, pay-downs, etc., and provide it to the review teams upon their arrival. Examiners may begin reading credit files at the larger review locations.
  • First Monday - This is the official interagency SNC review in May date.
  • Late June - Preliminary classifications are finalized and the agent bank is notified of any decision.
  • Mid August - Official notification of the results of the SNC review are distributed to participating banks.
  • Mid September - The list of credits selected for re-review is finalized.
  • Early October - Examiners begin reading credit files for re-reviews.
  • Late October - Voting on re-reviews is completed.
  • Early December - Re-review results are distributed.

Review Instructions: The "SNC Field Review Procedures" outline the SNC examination process and include specific instructions on duties and responsibilities, SNC files, loan discussions, disputes, procedures for prescreening certain credits for limited review, write-ups, and re-reviews. Any additional instructions are communicated to voting teams by electronic mail or through the OCC SNC intranet site.

Voting Process: SNC dispositions are decided by a majority vote of the team members, with each member having one vote. The review team may schedule formal discussions with bank management for any of four reasons: 1) credits are potentially classified or special mention, 2) the three voters do not agree, 3) the bank's internal risk rating is inconsistent with the voting team's initial conclusion, or 4) to clarify factual information.

The EIC or supervisor should notify the review bank of the preliminary disposition upon completion of the review and vote and before the loan write-ups are distributed. The review bank is advised that the preliminary disposition is confidential and is being provided only for its internal use. The review bank may, at its option, notify participating supervised institutions sharing in the credit. If the review bank elects to do so, it must advise the participants that the disposition is preliminary, and that the final notification will be issued by the appropriate regulatory authority once all the SNC results have been finalized and compiled.

Classified and Special Mention Loan Write-ups: SNC write-ups are to be uniformly prepared according to the "SNC Field Review Procedures." A SNC write-up is the written presentation of pertinent comments regarding classified or special mention credit risk.

The write-up includes four parts: 1) a heading, with details about the borrower, guarantors, credit type, and credit history; 2) a description of the terms of each facility; 3) the reasons for an adverse rating; and 4) any required accounting treatment, such as accrual status, and an explanation of the required treatment.

Uniform Treatment: All examiners will rely on SNC ratings for OCC reporting purposes until the credit is re-reviewed under the SNC program. SNCs are not reviewed at each individual participating bank. However, the examiner of each participating bank should consider the material improvement or deterioration of an individual loan, and the resulting effect on asset quality, ALLL adequacy, earnings, and the overall condition of the bank.

Interim Internal Risk Rating Changes: Participating banks are encouraged to revise their internal risk ratings of SNCs between SNC reviews to properly reflect the risk profile of the borrower. When there is a significant change that could affect OCC's rating of a credit, the agent national bank should immediately notify the deputy comptroller for Supervision Support and the bank's resident EIC, if any. That notification should include financial and other supporting data that could help OCC to decide if an interim supplemental review is warranted. SNCs that do not merit a formal, supplemental SNC review will be reviewed during the participating banks' normal examination. Examiners will use this information to evaluate the effectiveness and timeliness of the banks' internal risk rating systems and to determine ALLL allocations. The official SNC disposition, however, remains in effect until the next official SNC review.

Unreported SNCs: If a regularly scheduled examination discloses credits that qualify as SNCs but are not included in the SNC program, they should be reviewed during that examination. The EIC should forward the following information to the Deputy Comptroller for Supervision Support: a description of the credit, a list of participants, and the disposition of the credit. If the bank being examined is the agent and the examination team has adequate resources, the credit should be reviewed in accordance with SNC program procedures.

Appeals: When bank management does not agree with the voters' rating of a credit, the EIC or supervisor should attempt to mitigate differences through further discussion and review of any new information. The SNC analyst must be notified. The final decision for a preliminary rating is determined by a majority vote of the voting team. Neither EICs nor SNC analysts can overrule the decision of a voting team. When differences cannot be resolved, the voting team must notify bank management of the OCC appeal process.

Banks may appeal the disposition of a SNC under procedures outlined in OCC Bulletin 96-18, "National Bank Appeals Process," dated February 23, 1996. SNC appeals may be submitted by the agent bank directly, or on behalf of any of the participating national banks. If the agent bank refuses to file the appeal on behalf of the bank group, Supervision Support will accept an appeal from any one participating bank. Whenever possible, an interagency appeals panel will review all appeals. Participating OCC examiners will be designated by the deputy comptroller for Supervision Support, or his/her designee. The entire appeals process should normally be completed within 30 days from receipt of the appeal.

Re-reviews: The primary objective of the re-review process is to determine if there is any material deterioration or improvement in the credit risk of borrowers selected for re- review. The re-review process usually takes place six months after the annual review. Credits may be re-reviewed outside of this normal time frame if they contain significant exposure or if some event(s) has occurred that is so significant examiners believe it may cause a major rating change.

Normally credits are re-reviewed if they are more than $50 million and if some portion of the credit was classified doubtful or loss at the previous review. Other circumstances may warrant the re-review of credits. These circumstances include when a credit is internally downgraded by the agent bank, or when a credit is subject to significant media attention, or when a credit was not reviewed, for whatever reason, at the annual review. In some cases, a sample of credits within an industry may also be selected for re-review due to industry conditions or economics.

Re-review of an individual credit may be triggered by five primary events: 1) EIC, supervisor, or voting team recommendation; 2) SNC Analyst recommendation; 3) other field examiner recommendation; 4) other agency request, and 5) bank request, usually the agent or review institution. Final selection of credits for re-review is determined by the SNC Program Manager after consulting with the SNC Analysts and resident EICs.

Processing: SNC results for national banks are processed by OCC and for state banks by the FRB. Specific time frames, standards, and responsibilities for processing and exchange of information are incorporated in a separate agreement between the agencies. The primary supervisory agencies exchange loan write- ups as soon as possible after the conclusion of the field review.

Notification of Results: At the conclusion of the annual SNC review, a Report of Shared National Credits is distributed to all participating national banks. This contains a Report of Lenders and Their Borrowers, which lists all credits in which a participating bank has been identified as holding a participation. The Report of Shared National Credits also includes write-ups on credits classified or rated special mention during the review, if any.

Information Security: The Report of Shared National Credits is the property of OCC and is furnished to the banks for their confidential use. Under no circumstances shall a bank, or any of its directors, officers, or employees disclose in any manner the contents of that report to any person or organization not officially connected with the bank as officer, director, employee, attorney or auditor. Any other disclosure or use of this information, except as expressly permitted by the OCC, may be subject to the penalties provided in 18 USC 641.

Agencies have full discretion to determine internal distribution of the material generated under the program, as long as the confidentiality of the data is maintained. Except for responses required by the Freedom of Information Act, the materials may not be distributed externally by any agency without prior consultation of the other agencies. SNC information may be made available to appropriate state supervisory authorities or other federal supervisory authorities that agree to be bound by the same standards of confidentiality and other limitations and conditions respecting the use of such information.

ORIGINATING OFFICE

For further information, contact the Supervision Support Department at (202) 649-6670.

Ann F. Jaedicke
Deputy Comptroller
Supervision Support