Shared National Credit Program

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Shared National Credit Program

What Is the Shared National Credit Program?

The shared national credit program was established in 1977 by the Board of Governors of the United States Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) to provide an efficient and consistent review and classification of large syndicated loans. A syndicated loan is one that a group of lenders gives for a single borrower by working together. 1

Key Takeaways

  • Government agencies established the shared national credit program to ensure an efficient and uniform examination and categorization of large syndicated loans.
  • The purpose of this study is to examine credit risks, trends, and risk management approaches in big syndicated loans and the financial institutions that originate them.
  • The shared national credit program aims to guarantee that all loans are handled equally, as well as to enhance efficiency in credit risk analysis and categorization.
  • Loans and other obligations worth $100 million or more that are granted by at least three government regulated lenders come within the purview of the shared national credit program. 2
  • At 44.8% of the portfolio in 2021, US banks had the greatest proportion of obligations in the shared national credit program. 3

Understanding the Shared National Credit Program

The shared national credit program aims to examine credit risks, trends, and risk management approaches in the biggest and most complex loans given jointly by multiple lending institutions. The goal is to guarantee that all syndicated loans are handled uniformly, as well as to promote efficiency in credit risk analysis and categorization across financial institutions.

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In 2016, the program’s governing authorities implemented a semiannual SNC inspection schedule. These SNC evaluations are set to take place in the first and third quarters of the year. Depending on the lending institution, certain banks will be assessed once a year, while others will be reviewed twice a year. 4

The shared national credit program examines loans and any assets accepted as obligations of $100 million or more. The debt must be issued by at least three distinct organizations, all of which must be nationally monitored. 2

Shared National Credit Program and Syndicated Loans

Syndicated lending’s primary purpose is to distribute the risk of a borrower’s default among numerous lenders. Banks or institutional investors may be among these lenders (high-net-worth individuals, pension funds, and hedge funds).Because syndicated loans are often substantially bigger than regular bank loans, even one borrower failing might bankrupt a single lender.

To further dissect syndicated loans, these arrangements are also prominent in the leveraged buyout sector. A leveraged buyout is the purchase of another firm with sufficient debt to cover the initial acquisition costs.

Along with the assets of the acquiring firm, the assets of the company being purchased are often used as collateral for loans. A leveraged buyout allows corporations to make substantial purchases without contributing a huge amount of cash.

Because of the intricacies inherent in syndicated loans, the shared national credit program strives to guarantee best practices across institutions and to protect the financial markets at large from any difficulties.

Shared National Credit Program 2021 Findings

The 2021 portfolio of the shared national credit program had 5,764 borrowers worth $5.18 trillion, a 2.1% increase year on year. US banks held 44.8% of the portfolio, followed by international banks and other financial institutions such as hedge funds and insurance companies.5

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The report’s conclusion was that credit risk remained elevated, owing particularly to the Covid-19 epidemic. Commitments with the lowest supervisor ratings fell by 10.6% in 2021, owing to the increase in commodity prices and the resulting improvement in the oil and gas industry. 6

The program’s loans are graded according to their risk level: special mention, substandard, dubious, or loss. The following three categories, labeled “classified,” represent loans with poor performance. Classified loans accounted for 60% of the whole portfolio. This is a rise from 58% in 2020. 7

What Defines a Shared National Credit?

A shared national credit is a loan or other type of credit extension of $100 million or more at the time of origination, committed under a formal lending agreement, and shared by three or more unaffiliated supervised institutions. 2

What Is an SNC Review?

A shared national credit review is an examination of the quality of syndicated loans classified as “shared national credit” by the Fed. The evaluation is conducted and determined by the Fed, the FDIC, and the Office of the Comptroller of the Currency. 8

What Is a Syndicated Bank Loan?

A syndicated bank loan is a loan made available to a single borrower by a group of lending institutions. Each lending institution makes a contribution to the total loan. For example, if Nike requires a $400 million loan, a syndicated loan from Citigroup, JP Morgan, Bank of America, Deutsche Bank, and Wells Fargo could consist of $100 million from Citigroup, $70 million from JP Morgan, $40 million from Bank of America, $100 million from Deutsche Bank, and $90 million from Wells Fargo.

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