Bank One Corporation - Page 51

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          downgrade the risk class ratings.  Externally, the OCC’s bank               
          examiners would review certain of the risk class ratings assigned           
          by FNBC, particularly those assigned to major credits.  The OCC             
          did not review all risk class ratings assigned, and the OCC did             
          not always agree with the risk class rating assigned by FNBC.               
                    3.  CRESCO Loss Reserve Factors                                   
                         a.  Loss Reserves                                            
               Banks were required to establish loss reserves for expected            
          credit losses.  These reserves were ascertained for each                    
          transaction by applying the following three factors:  (1) The               
          expected credit exposure, (2) the probability of default by the             
          counterparty, and (3) the percentage of loss in the event of                
          default by a counterparty.                                                  
                         b.  CRESCO                                                   
               CRESCO was FNBC’s overseer with respect to credit risk                 
          appetite, its credit risk policies and procedures, and the                  
          portfolios of credit risk that resulted from its activities.  For           
          each risk classification, FNBC established a CRESCO loss reserve            
          factor to estimate its rate of credit losses for financial                  
          accounting and everyday business purposes.  This factor was                 
          reviewed periodically by CRESCO.                                            
               The determination of the CRESCO loss reserve factor involved           
          many subjective estimates and business judgments.  The loss                 
          reserve factor was based on historical commercial loan loss                 






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Last modified: May 25, 2011