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OCC BULLETIN 1999-10
To: Chief Executive Officers of All National Banks, Department and Division Heads, and All Examining Personnel

The guidance attached to this bulletin continues to apply to federal savings associations.

The Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation, the Federal Reserve Board, and the Office of Thrift Supervision have jointly issued the attached "Interagency Guidance on Subprime Lending." The guidance discusses the risks inherent in subprime lending and establishes the agencies' expectations for proper business planning, risk management, and controls.

A number of institutions have incurred significant losses and other problems because of poorly structured subprime lending programs. Generally, these institutions underestimated the higher default rates and loss-on-default rates involved with subprime lending, as well as the higher overhead costs. Moreover, they frequently lacked the management expertise, business planning processes, and risk management processes necessary to manage these risks in a safe and sound manner.

The guidance is effective immediately and applies to all national banks and their operating subsidiaries that engage in, or expect to engage in, subprime lending. Because of the higher risk associated with subprime lending activities, the OCC expects banks to fully understand the risks involved, exercise increased risk management, and provide appropriate managerial, staffing, and capital support. Further guidance and examination procedures for examiners reviewing the subprime lending activities of national banks will be issued shortly.

For more information, please contact the Credit Risk Division at (202) 649-6670.

Emory W. Rushton
Senior Deputy Comptroller for
Bank Supervision Policy

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