Such instruments were thought to have a supervisory “stamp of approval”, but in fact often had risk characteristics similar to or greater than those designated as “high risk”. Assuming positive industry comments, the FFIEC hopes to implement the proposed new policy in early 1998. The comment period extends through November 17, and I encourage all of you to comment.
Nevertheless, it would be disastrous if banks attempted to ride the situation out, as reserves can soon be exhausted when profitability declines. This applies, in particular, if the economic situation were to deteriorate. This makes it especially important for banks to be profitable in the long term.