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To: craig crawford who wrote (138344)	2/1/2002 6:27:40 PM
From: Oeconomicus	Read Replies (1) \| Respond to of 164684

LENDING-RELATED OFF-BALANCE-SHEET COMMITMENTS If you think the numbers you posted are alarming or represent any kind of hidden liabilities or risks, then your understanding of banks and their regulators could stand to occupy a whole lot of your self-education-cause-college-sucks reading time. "Off-balance sheet" does not mean hidden and "commitments" does not mean liability. Banks are among the most heavily regulated and scrutinized businesses in America. When a bank issues a letter of credit, for example as a standby to support a commercial paper program, they have not made a loan and do not have an asset, but they do have to count the obligation to advance funds should the LC be called upon when regulators are looking at the adequacy of their capital. Similarly, any commitment to lend money, including establishing a credit card account for a consumer, is an off-balance sheet obligation. It is not an asset until the card is used, the equity line drawn, etc. But, it does represent credit exposure and must be reserved against for potential loan losses. And as I said, there is nothing "hidden" about it. Here's the footnote from BAC's last 10-Q, which took me all of about 90 seconds to find: Credit Extension Commitments The Corporation enters into commitments to extend credit, standby letters of credit and commercial letters of credit to meet the financing needs of its customers. The commitments shown below have been reduced by amounts collateralized by cash and amounts participated to other financial institutions. The following table summarizes outstanding commitments to extend credit at September 30, 2001 and December 31, 2000: ---------------------------------------------------------- (Dollars in millions) September 30, 2001 December 31, 2000 ---------------------------------------------------------- Credit card commitments $77,970 $72,058 Other loan commitments 228,387 243,124 Standby letters of credit and financial guarantees 42,469 33,420 Commercial letters of credit 8,071 3,327 ========================================================== Now, does that mean JPM hasn't made some bad loans and investments? Of course not. We are all allowed to make mistakes and management should be held accountable for all their decisions by the shareholders. Only if they have lied to shareholders or regulators does it become a public policy or legal matter. The media, Forbes included (if that is where you got this one, too), would like to stir up a public policy debate, public outcry, headlines and advertising dollars by taking the Enron scandal and using it to blow every question raised when some journalist or pol doesn't understand a footnote way out of proportion and make an issue out of nothing. You should know this.