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1997-08-06 10:32:18


Noncompliant Borrowers: Down Go the Banks



Comptroller of the Currency Eugene Ludwig told the Senate Banking Committee that the largest U.S. banks really don't know if their borrowers will survive the year 2000.

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Year 2000 Exposure of Large Corporate Borrowers: The value of bank loan portfolios may be affected if borrowers are unable to meet their payment obligations to the banks because of the borrowers' own year 2000 malfunctions. For this reason, the OCC [Office of the Comptroller of the Currency] has surveyed the largest national banks to find out if they have considered the credit risk their largest corporate borrowers may pose. The assessment looked at the 24 largest national banks that pool their resources to make the largest corporate loans, which start at $25 million. The banks surveyed underwrote approximately $434 billion in syndicated loans in 1996, representing 80 percent of the syndicated loans originated by national banks and 36 percent of all outstanding syndicated loans.

Our results show that while large national banks are aware of the credit implications of the year 2000, most need to take additional actions to address the issue with current or potential borrowers. Nonetheless, most banks surveyed are in the process of determining what should be done to address year 2000 credit risks. More than half will review year 2000 plans with corporate borrowers, and one-third plan to include year 2000 analyses in their file documentation or credit review process. The OCC plans to address these credit risk issues in future industry and examiner guidance, in order to ensure that examiners verify that a bank incorporates a borrower's year 2000 preparations into its underwriting standards (p. 7).


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