What Is the Shared National Credit Program?
The Board of Governors of the U.S. Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) formed the shared national credit program in 1977 to provide an efficient and consistent review and classification of large syndicated loans. A syndicated loan is a loan that a group of lenders, working in tandem, provides for a single borrower.
- The shared national credit program was created by government agencies to provide an efficient and consistent review and classification of large syndicated loans.
- The goal is to analyze credit risks, trends, and risk management methodologies amongst large syndicated loans and the financial institutions that create them.
- The shared national credit program seeks to ensure that all loans are treated the same and to improve efficiency in credit risk analysis and classification.
- Loans and any other debts valued at $100 million or higher and that are issued by at least three lenders that are federally supervised, fall under the supervision of the shared national credit program.
- In 2021, U.S. banks consisted of the highest percentage of commitments in the shared national credit program portfolio, at 44.8% of the portfolio.
Understanding the Shared National Credit Program
The shared national credit program seeks to analyze credit risks, trends, and risk management methodologies among the largest and most intricate loans that are issued jointly by various lending institutions. The objective is to ensure that all syndicated loans are treated on the same basis as well as to improve efficiency when it comes to credit risk analysis and classification that is shared amongst financial institutions.
The agencies which govern the program began a semiannual SNC examination schedule in 2016. These SNC reviews are scheduled for the first and third quarters of the year. Depending on the lending institution, some banks will be reviewed once annually, and others twice annually.
The shared national credit program looks at loans and any assets that are taken as debts that are valued at $100 million or higher. The debt must be issued by at least three separate institutions and these institutions must be federally supervised.
Shared National Credit Program and Syndicated Loans
The main goal of syndicated lending is to spread the risk of a borrower's default across multiple lenders. These lenders can be banks or institutional investors (high-net-worth individuals, pension funds, and hedge funds). Because syndicated loans tend to be much larger than standard bank loans, the risk of even one borrower defaulting could cripple a single lender.
To break down syndicated loans even further, these structures are also common in the leveraged buyout community. A leveraged buyout is the acquisition of another company, using a significant amount of debt to meet the initial cost of acquisition.
The assets of the company being acquired are often used as collateral for the loans, along with the assets of the acquiring company. The goal of a leveraged buyout is to allow companies to make large acquisitions without committing a great deal of capital.
Because of the complexities involved in syndicated loans, the shared national credit program seeks to ensure best practices amongst institutions and to ensure against any issues that could be detrimental to the financial markets at large.
Shared National Credit Program 2021 Findings
The 2021 portfolio of the shared national credit program consisted of 5,764 borrowers, valued at $5.18 trillion, increasing by 2.1% year-over-year. The largest holder of the portfolio were U.S. banks, with 44.8%, followed by foreign banks, and then other financial institutions, such as hedge funds and insurance companies.
The consensus of the report was that credit risk remained high, primarily due to the Covid-19 pandemic. Commitments with the lowest supervisor ratings decreased by 10.6% in 2021, which was driven by the recovery in commodity prices and the improvement in the oil and gas sector as a result.
The loans in the program are classified by their risk levels; special mention, substandard, doubtful, or loss. The last three categories indicate loans of poor performance and are termed "classified." Loans that are classified made up 60% of the total portfolio. This was an increase from 58% in 2020.
What Defines a Shared National Credit?
A shared national credit is a loan or other form of extending credit that is $100 million or more at origination, committed under a formal lending arrangement, and shared between three or more unaffiliated supervised institutions.
What Is an SNC Review?
A shared national credit review is a review of the quality of syndicated loans that are considered "shared national credit" by the Fed. The Fed, the FDIC, and the Office of the Comptroller of the Currency conduct the review and determines the results.
What Is a Syndicated Bank Loan?
A syndicated bank loan is a loan issued to one borrower by many lending institutions. Each lending institution contributes a portion of the overall loan. For example, if Nike needs a loan of $400 million, a syndicated loan for Nike 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.