Report on Meeting with Senior Executives at OCC

March 19, 2020

By: Richard Gumbrecht


Gumbrecht2 


I had the pleasure of meeting last week with representatives of the Office of the Comptroller of the Currency to discuss issues of importance to our respective missions.  Participating were Lou Ann Francis, Director of Commercial Credit Risk who oversees Asset Based Lending for the OCC and her staff as well as her boss Richard Taft, Deputy Comptroller of Credit Risk.  I let it be known that I was there representing our association at large and not the views of any particular member.  Our conversation focused on improving understanding of our industry, better aligning our interests and strengthening ongoing communications as summarized below.

  • I provided an overview of the ABL universe, using the 2019 SFNet Foundation Market Sizing and Impact Study as a baseline and sharing insights from our Market Pulse Report and high level Westat analysis. This included information demonstrating the critical role we play in our economy, the robustness of our data resources and our commitment to fair business practices (the latter they were pleased to see articulated on our website).
  • The OCC reinforced their mission with respect to safe and sound business practices and shared concerns regarding the effects of relaxed covenants (they want to see this adequately reflected in LGD) and risks of supply chain disruptions relative to COVID-19. They appreciate the critical role our industry plays in times of economic uncertainty and were pleased to see the low loss information we have compiled through the last several economic cycles.
  • Regarding Basel III implementation scheduled to take effect in January 2022, I conveyed industry concerns around floors for LGD under the Advanced Approach that are greater than actual experience and could have negative consequences on capital availability due to higher than necessary cost of capital.I asked that they consider a carve out for ABL as was done with Basel II guidance.  Further review is necessary by their capital policy group. I will keep you posted as this progresses.
  • With respect to Leveraged Lending, they reinforced that there are no “bright lines” on leverage limits for ABL borrowers but that even where ABL is the only or “dominant” source of funding, they declined to give ABL a more explicit exemption as they still want to see how lenders are addressing risks with highly levered clients.
  • Generally, they are willing to revisit the ABL Handbook which was last updated in 2014 as part of a deliberate process to improve the utility and value of this resource. No date was set for doing this, but they are receptive to discussing this further.
  • OCC does not endorse a specific reference rate but is sensitive to the disruption the transition from LIBOR is causing our community. They recommend we continue to work with the LSTA and the Federal Reserve ARRC Committee on this.
  • It was agreed that the organizations should continue to build a mutually supportive relationship and that SFNet should continue to provide insights useful to OCC’s rule making process.

Please feel free to call me at  212-792-9391 or email at rgumbrecht@sfnet.com if you have any questions or recommendations regarding the role SFNet can play in supporting our member’s regulatory interests.

WEB-0874_ABL-300x250 banner