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These questions and answers were provided by the OCC on the Interagency Policy Statement on Documentation for Loans to Small- and Medium-Sized Businesses and Farms. Participation in this minimal loan documentation program is commonly referred to as having a loan "basket."
WHAT IS A LOAN BASKET?
The basket was developed to help ease the "credit crunch" by encouraging banks to make small business and farm loans which they might not otherwise have made because of potential regulator criticism over lack of documentation.
DOES EVERY 1- AND 2-RATED BANK HAVE TO ESTABLISH A LOAN BASKET?
No, this program is entirely voluntary. Each bank should assess its own situation and determination whether or not using the basket would enable the bank to better serve small business credit needs of the community.
HOW DOES A COMPOSITE 3-RATED BANK APPLY TO USE THE BASKET?
A well or adequately capitalized 3-rated bank interested in establishing a basket of its loan portfolio should send a written request to its supervisory office, stating that the bank wishes to participate in the minimal loan documentation program. Banking Bulletin 93-46, Interagency Policy on Small Business Loan Documentation (Supplement), permits 3-rated banks to apply to participate in the program and provides guidance to those banks.
WHAT CRITERIA WILL THE OCC USE TO EVALUATE REQUESTS FROM COMPOSITE 3-RATED BANKS WISHING TO USE THE BASKET?
The supervisory office will establish the following:
* Capital ratios to ensure that they are at or above levels established for adequately capitalized banks under Prompt Corrective Action, Section 131 of FDICIA;
* The most recent report of examination to determine any signs of current underwriting problems;
* Compliance with any formal or informal administrative actions to assure that the bank is in substantial compliance; and
* CAMEL factors to verify their stability and improvement.