Volume 6, Issue 2
Page 3
Coverage of
State Bank Department
noncurrent
0.59 : 1
REFORM
loans drops 0.87 : 1
Continued from Page 2

1:1 ratio with ALLL
The diverse nature of our
prudent at this time
financial system provides
fuel to our economy in the
boom times, and sustains
EDITOR’S NOTE: 0.98 : 1
our economy during the
Gary Bush is a commis-
busts. At the lowest point
sioned senior examiner at
of the recession, while the
the Bank Department and
largest institutions in the
supervisor of a commercial
examination group based
0.86 : 1 country were surviving on a
in Little Rock. He has 1.21 : 1
steady stream of taxpayer-
been at the Department for
funded government subsidy
16 years.
programs, community and
By Gary Bush
regional banks continued to
Bank Review Administrator
provide the requisite finan-
At the present time, ALLL TO NONCURRENT LOANS: These ratios are
cial services to keep our
there is no parameter in
calculated by aggregating balances reported on March 31, economy from stalling.
the Arkansas State Bank
2009, by commercial banks with main offices in Arkansas.
The administration’s plan
Department self-
Banks are grouped into five areas used in the Bank Depart-
establishes a new Consumer
examination program for
ment’s self-examination program. The aggregate ratio for all
Financial Protection
the ratio, Allowance for
135 commercial banks in the state is 0.78:1. For commercial
Agency. We appreciate that
Loan and Lease Losses
banks nationally, the ratio is 0.70:1.
the plan recognizes the re-
(ALLL) to Noncurrent
program reveals that re-
sources and experience state
Loans.
Hot Topic
serve coverage of noncur-
authorities bring in terms of
However, keeping this  What Arkansas banks
rent loans at the best-
enforcement and identifying
ratio at 1:1 or greater may can do after challenging
performing Arkansas
emerging trends.
help managers document first quarter. Page 1.
state-chartered commer-
We are very concerned
provisions for risk if loss
cial banks has been about
with the proposed agency’s
history in the current mar- ing or adversely criticized
two times higher than the
structure and independence
ket has not been ade- loans begins to rise.
average ratios for all state
from prudential regulators.
quately established. This ratio provides an
banks in 2007 and 2008.
These two regulatory priori-
Banks with sustained indication of reserve cov-
However, reserve cov-
ties are not in irreparable
ratios of less than 1:1 that erage of a bank’s highest-
erage of noncurrent loans
conflict with one another.
are experiencing increases risk credits. It is calcu-
for “1”-rated institutions
Instead, we believe the ex-
in nonaccrual or problem- lated by dividing the
decreased by 112 basis
act opposite is true and
atic loans will most likely ALLL by the sum of loans
points in 2008, according
these two goals rely upon
encounter expanded ex- 90 days or more overdue
to the Bank Department
one another. Enhanced
amination procedures in and still accruing and
study.
coordination among regula-
regard to ALLL methodol- nonaccrual loans.
Of course, this ratio is
tory agencies is needed to
ogy, identification of risk The self-examination
only one of many that are
maximize the expertise, re-
and collateral protection. program does not estab-
considered when exami-
sources, and differing per-
That is not to say that lish a parameter for this
nation ratings are as-
spectives offered by multi-
banks with ratios of less ratio since credit losses
signed.
ple regulators. We are com-
than 1:1 do not have satis- associated with these
Study findings and
mitted to working with the
factory reserves but direc- types of loans will vary
more recent data provide
administration and Con-
tors and managers should from bank to bank.
an indication of decreas-
gress to provide a coordi-
be mindful of the inherent A study utilizing exami-
ing reserve coverage of
nated and effective struc-
risk within loan portfolios nation ratings and data
ture for consumer protec-
if the level of nonperform- from the self-examination See RATIO, Page 8 tion.
June 30, 2009
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