News Release 2005-74 | July 28, 2005

OCC Survey Finds Increased Easing of Both Commercial and Retail Credit Underwriting Standards

Washington – The Office of the Comptroller of the Currency (OCC) reported today that it has found significant easing in both commercial and retail credit underwriting standards over the past year.

The OCC's eleventh annual Survey of Credit Underwriting Practices noted significant easing in underwriting standards applied to commercial real estate and middle market loans, products which most banks offer and which have a potentially significant impact on credit quality in the national banking system. Commercial loan standards also eased for syndicated/national, structured finance, asset-based, and international loans—lending activities centered in the larger banks.

OCC examiners found that easing of underwriting standards for retail credit was concentrated in real estate secured products such as home equity and first mortgage loans. Notably, this is the first time in the survey's eleven-year history that examiners reported net easing of retail underwriting standards.

The 2005 survey indicates a pronounced trend toward easing commercial credit underwriting standards, with significantly more banks easing underwriting standards than tightening standards. Examiners reported that 34 percent of banks eased, 12 percent tightened, and 54 percent did not change their commercial standards. In 2004, by contrast, only slightly more banks eased than tightened credit underwriting standards. In addition, the survey found that underwriting standards for retail credit products also reflected more easing (28 percent) and less tightening (10 percent).

"Ambitious growth goals in a highly competitive market can create an environment that fosters imprudent credit decisions," said Barbara Grunkemeyer, Deputy Comptroller for Credit Risk. "Banks should be diligent to ensure risk management practices keep pace with new products, changing risk selection practices and underwriting standards, and emerging concentrations. Exceptions to underwriting standards need to be carefully controlled and monitored, and relationship and line of business managers must be held accountable for loan quality as well as loan volume."

Ms. Grunkemeyer emphasized that the OCC will continue to focus supervisory attention and resources to ensure that credit risk in national banks is appropriately identified and that credit risk management practices are commensurate with risk levels.

"Retail lending has undergone a dramatic transformation in recent years as banks have aggressively moved into the retail arena to solidify market positions and gain market share," said Ms. Grunkemeyer. "Higher credit limits and loan-to-value ratios, lower credit scores, lower minimum payments, more revolving debt, less documentation and verification, and lengthening amortizations—have introduced more risk to retail portfolios. While performance remains sound, banks should be wary of the unseasoned nature of many of these portfolios and approach further easing with caution."

The 2004 survey included the 71 largest national banks, that have assets of $2 billion or greater and covered the 12-month period ending March 31, 2005. The aggregate loan portfolio of the surveyed banks was approximately $2.9 trillion and represents 90 percent of all outstanding loans in national banks.

This Survey of Credit Underwriting Practices 2005 can be found on the OCC Website at:

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