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Appeal of Shared National Credit (Third Quarter 2018)


An agent bank appealed the split risk rating percentage of pass and special mention assigned to two revolving credits reviewed during the third quarter 2018 Shared National Credit (SNC) examination. The purpose of the credit facilities is to issue letters of credit, all of which were undrawn as of the SNC review.


The appeal agreed with the examiners’ decision to assign a split rating of special mention and pass, but contended that the percentage of the facilities assigned a pass rating should be higher. The appeal acknowledged the potential weaknesses cited for the obligor and agreed that cash collateral controlled by the agent bank, on behalf of the lending group, should be rated pass. However, the appeal argued that the examiners disregarded some of the collateral protection provisions within the credit agreement when assigning the split rating percentages. Specifically, the appeal noted that the credit agreement requires the obligor to maintain a certain percentage of the funded portion of the facilities as cash collateral prior to issuing new letters of credit. The appeal contended that examiners should have applied this collateral coverage provision when determining the split rating percentages.


An interagency appeals panel of three senior credit examiners concurred with the SNC examination team’s originally assigned split rating percentages of pass and special mention.

The appeal’s request to extrapolate the potential for additional cash collateral to increase the amount of global commitment rated pass was unsupported because provisions in the credit agreement allow the lending group to issue letters of credit without offsetting cash collateralization.