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ICBA Asks Banking Agencies to Reject Modifications to Commercial Loan Classifications

Washington, D.C. (June 30, 2005) - The Independent Community Bankers of America (ICBA) urged the banking agencies not to go forward with their proposal to modify the existing commercial loan classification system that measures the quality of commercial loan portfolios, because the current system works well and the proposed changes would be burdensome and costly for community banks.

"While not perfect, the current commercial loan classification system, which has been in place for close to 70 years, has served as an important risk assessment tool through a number of economic cycles," ICBA said in a letter to the agencies. "Community banks believe it works well in identifying and evaluating credit risk and provides reliable information for determining capital adequacy and the allowance for loan and lease losses. The proposal to change the classification system is very troubling to the majority of community bankers as they see the costs and burdens of the change far outweighing the benefits it would bring. Community banks are already disproportionately weighed down by regulatory burden and implementing this proposed classification framework would unnecessarily add to the load."

The proposed system is overly complex for the vast majority of community banks. "Banks that need a more complex framework for classifying credit should not be precluded from adopting one. But, ICBA does not see the need for regulators to mandate a change in classification methods for the entire banking industry when the costs and burdens of making the change outweigh the benefits," the letter concluded.

See the full text of the letter at www.icba.org.