Magazine article The RMA Journal

Let's Be Careful out There

Magazine article The RMA Journal

Let's Be Careful out There

Article excerpt

IT HAS BEEN about three years since the financial crisis shook the economy, and our industry continues to operate in an uncertain environment. Yes, profitability is up at many institutions, but growth is tepid. And it is in this weak but recovering environment that we see competition nudging underwriting standards.

In its 17th annual Survey of Credit Underwriting Practices, released in June, the Office of the Comptroller of the Currency noted that underwriting standards are easing in response to competition and also to an improvement in credit market liquidity and a desire for more market share. But not at all banks. Many are making no changes, or they're continuing to tighten underwriting standards, especially in products with poor performance.

The survey does not indicate an industry heading toward trouble, but the message is clearly one of caution. Dave Wilson, the newly appointed senior deputy comptroller for bank supervision policy and chief national bank examiner, said, "Some easing of standards is normal and healthy as the economic environment stabilizes." But he also warned, "We need to remember that overly liberal underwriting standards contributed to extremely high credit losses. The pace of easing standards in products like leveraged lending is disconcerting and warrants close attention."

Wilson reminded us of what we already know but sometimes forget: that bankers need to apply sound and consistent underwriting standards, regardless of the economic cycle or whether a loan is originated with the intent to hold or sell it.

As RMA members, you know that the best protection against underwriting lapses is a well-developed risk appetite statement. That statement, which should be absorbed into your institution's culture, is the cornerstone of a robust enterprise risk management program. …

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