Actually, your response does matter

"Responsibility walks hand with capacity and power," said novelist and poet Josiah Gilbert Holland (1819-1881). As tempting as it may be to say we're too busy or that our one response can't make that much difference, it's important to remember that our future direction is determined by those who do respond. In this letter, I'm urging response to two items: one that affects all RMA members and one that affects all banks.

RMA election. RMA's Senior Associates will soon be notified of our upcoming election of board members and vice chair and of a proposed change to our by-laws. I feel great assurance as to the quality of votes to be cast; however, it's important to ensure the quantity of votes as well. Frankly, in recent years the percentage of institutions exercising their right--and responsibility--to vote has been low. We are an association dedicated to our members. Last year we introduced electronic balloting to simplify the process. On behalf of everyone at RMA--and in the interest of good governance--I ask you to vote. We'd like nothing more than to have all 2,200 Senior Associates log on to www.rmahq.org next month and take the few minutes or so needed to review the biographies of proposed board members and to vote.

Also on the ballot this year is a change to RMA's by-laws that expands the definition of who may qualify to be an individual member of our Association. The Board has approved three new subclasses of individual members: 1) current Associates who move to nonmember (but eligible for membership) institutions; 2) individuals who pass the RMA Credit Risk Certification exam and are employed by nonmember (although eligible) institutions; and 3) individuals who successfully pass the RMA Credit Risk Certification exam and are employed by organizations and entities not eligible for institutional membership.

Voting will take place over an eight-week period that ends in mid-August. Every vote counts equally, regardless of the size of institution the Senior Associate represents.

Loan classification change. The regulators have requested comment on an important proposal that would change the supervisory framework for classifying commercial credit exposures. The proposed change would replace the current commercial loan classification categories--special mention, substandard, doubtful, and loss--with a two-dimensional framework. The first dimension would measure the risk of the borrower defaulting (borrower rating). The second dimension would measure the loss severity to the institution if the borrower defaulted (facility rating.)

In place for 67 years, the current system does not encompass a loan facility rating. Therefore, institutions can't take loan structure or collateral into account when rating loans for regulatory classification purposes. The new system is designed to accommodate institutions with more advanced internal risk-rating systems while not being overly burdensome to smaller institutions that continue to use the regulatory classification as their internal system.

Under the proposed system, the major change is the establishment of a four-category system to gauge the severity of possible losses after default. Loss severity would be rated as follows:

1. Remote--if the lender had enough collateral to cover any loss.

2. Low--if the lender expects to retrieve all but 5% of the principal.

3. Moderate--if losses would be 5% to 30%.

4. High--if they would be over 30%.

The remote, category could help avoid common disagreements between lenders and examiners about a loan's status. Because the current ratings system has only one dimension, banks have had to hold extra reserves against problem loans even though the loans were well collateralized.

Clearly, the proposal offers advantages and institutions should not pass up this opportunity to offer comment to the regulators. After all, classifying commercial credit exposures is an integral part of our business. I urge you to review this proposal and send your comments to the regulators by June 30.

More information on loan classification is in Volume 70, No. 58 of the Federal Register, visit www.gpoaccess.gov/fr/index.html; then enter "fr28mr05-105" (in quotes) and click "submit"; then click on "html."

Maurice H. Hartigan II

RMA President and CEO

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