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Subject: Classification of Securities
Date: June 15, 2004
To: Chief Executive Officers of All National Banks, Department and Division Heads, and All Examining Personnel
Description: Uniform Agreement on the Classification of Securities
The guidance attached to this bulletin continues to apply to federal savings associations.
The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision have revised their 1979 "Uniform Agreement on the Classification of Assets and Appraisal of Securities Held by Banks and Thrifts," that outlines how the agencies classify securities during examinations.
The revised agreement, issued on June 15, 2004, generally retains the use of credit ratings from nationally recognized statistical rating organizations (NRSROs) to assign classifications for securities, but makes several modifications to reflect changes in accounting standards and bank risk management practices. Principal changes from the prior agreement include:
The use of NRSRO ratings to assign security classifications does not apply to securities that national banks have acquired with their lending authority. These securities are evaluated for risk management and classification purposes as loans, subject to GAAP. As stated in OCC 2002-19, "Unsafe and Unsound Investment Portfolio Practices," dated May 22, 2002, banks using their lending authority to acquire securities must apply the same standards of credit analysis, underwriting, approval, and ongoing monitoring as they would normally apply to loans. Examiners will require corrective action where appropriate.
A copy of the revised Uniform Agreement is attached. This issuance rescinds OCC Banking Circular 127, dated April 26, 1991, which the OCC used to implement the 1979 agreement.
For further guidance on classification of securities contact Thomas O'Dea, Credit Risk at (202) 874-5170, or Kurt Wilhelm, Treasury and Market Risk at (202) 874-5670.
Kathryn E. Dick
Barbara J. Grunkemeyer