Retail Loan Review: At RMA's Annual Retail Risk Management Conference, Three Participants in the Consumer Loan Review Round Table Shared Their Best Practices on Reporting, Models, and Processes

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SHARING THEIR RESPECTIVE institutions' best practices in the credit review function were Dave Hackney, manager of the consumer and business banking credit review group at Regions Bank; Mike Hudak, manager of consumer credit risk review at Wachovia, whose team oversees lines of business ranging from retail to corporate investment banking, as well as the asset quality and credit processes of the REIT portfolio and Regulation O; and Ed Cahill, who manages the business process review group and is responsible for reviewing retail and commercial lending functions at Capital One Bank.


When it comes to reporting method and frequency, all three institutions rely heavily on close communication with the bank's board of directors--whether directly or indirectly.

At Capital One, Cahill reported that the business process review group reports directly to the board of directors on a quarterly basis. The group independently reviews major asset portfolios on an ongoing basis, as well as those areas of the company responsible for managing credit. This includes the credit scoring office as well as various divisional credit offices.

The business process review group issues approximately 20 reports each year, reviewing all of Capital One's asset portfolios and functional areas on a three-year rotation. Upon review, the group uses a reporting standard known as "significant and impactful." Signifigance, Cahill said, relates to the probability of an event, and impactful references the severity of that occurrence.

In conducting our reviews," he said, "if we find an area of weakness or a gap in process that is both significant and impactful, that's what we report up to the board of directors as a major finding." He added that written reports also include summary information about overall processes and controls at Capital One.

Hackney said his group at Regions reports quarterly to the board's risk committee. The group benefits from a reporting line to the bank's chief risk officer.

"Our mission is to provide an independent and objective assessment not only of credit, origination, and portfolio quality" he said, "but also of the quality of credit risk processes surrounding origination and management of our lines of business."

At Regions, any key issue the group raises is brought to the executive manager of the appropriate line of business. The manager's response is then incorporated into the report for the bank's board of directors, and progress toward resolution is tracked.

Hudak's Wachovia group also reports through the credit risk committee of the board of directors, which is chaired by the chief risk officer. Hudak's group performs focused reviews and issues reports assessing a business line's asset quality, credit process, and loan servicing.

The group ranks risks through three primary ratings. "Key issues" pose a significant threat and require immediate executive attention. "MRAs" are matters requiring attention, which also require action plans.

"Recommendations," Hudak said, "represent low risk or low impact to operations. Identification of these items at an early stage is viewed as an opportunity for management to implement corrective action and improve current operations. Additionally, resolution of these items will help minimize future risk."


To ensure efficiency, and to avoid reviewing unnecessarily on an annual basis, all three banks employ various rating systems to determine which portfolios or business entities are reviewed and when. …