According to the four U.S. federal and thrift banking agencies in a report on Shared National Credits (SNC) issued on September 24, credit quality declined sharply for loan commitments of $20 million or more held by multiple federally supervised institutions. The credit risk of these large loan commitments was shared among U.S. bank organizations, foreign bank organizations (FBOs), and nonbanks such as securitization pools, hedge funds, insurance companies and pension funds. Credit quality deteriorated across all entities, but nonbanks held 47% of classified assets in the SNC portfolio, despite making up only 21.2% of the portfolio. U.S. bank organizations held 30.2% of the classified assets and made up 40.8% of the SNC portfolio.

The 2009 review covered 8,955 credits totaling $2.9 trillion extended to approximately 5,900 borrowers. Loans were reviewed and categorized by the severity of their risk—special mention, substandard, doubtful, or loss—in order of increasing severity. The lowest risk loans, special mention, had potential weaknesses that deserve management attention to prevent further deterioration at the time of review. The most severe category of loans, loss, includes loans that were considered uncollectible.

Key findings are available here.

The SNC program was established in 1977 to provide an efficient and consistent review and classification of SNC, which includes any loan and or/formal loan commitment, and any asset such as real estate, stocks, notes, bonds and debentures taken as debts previously contracted, extended to borrowers by a federally supervised institution, its subsidiaries and affiliates that aggregates to $20 million or more and is shared by three or more unaffiliated supervised institutions. Many of these large loan commitments are also shared with foreign banking organizations and nonbanks, including securitization pools, hedge funds, insurance companies and pension funds. In conducting the 2009 SNC review, agencies reviewed $1.2 trillion of the $2.9 trillion credit commitments in the SNC portfolio, or 41% of the credits by dollar volume. The 2009 SNC sample was heavily weighted toward non-investment grade and criticized credits. The results of the review are based on analyses prepared in the second quarter of 2009 using credit-related data provided by federally supervised institutions as of December 31, 2008, and March 31, 2009.

The entire report is available here.