Being a Banker Today – The Changing Role of the Underwriter

The following is the next installment in RMA’s Credit Risk Council 2017 Industry Insights: Perspectives from the Front Line.

Before the financial crisis, the primary role of the bank underwriter was to make good decisions in deploying the bank’s resources to help loan applicants achieve their goals. The scorecard for how well the banker or underwriter did their job could be seen in their unit’s income statement. In recent years, documenting the rationale for the credit decision has become equally as important. Substantiating the reason for an approval or decline is essential for a number of reasons, including consistency, fair lending, and making the job of subsequent reviewers easier.

The challenge is communicating to today’s underwriters and bankers that both the decision and the documentation are important. Failing to make that communication puts the industry at risk and demoralizes the current crop of bankers who might not feel the same exciting connection to their customers’ successes. Taken to its worst extreme, bankers could decide that in some cases saying “no” is easier than doing the necessary work to document the justification for a “yes,” especially on a complex transaction. That would be a negative outcome for all parties – the banker, the bank, the borrower, the industry, and ultimately the economy.

What, then, is a banker or leader to do? The following are recommendations from RMA’s Credit Risk Council.

Understand the linkages between the decision and the subsequent review(s).
Bankers at all levels should understand the importance of the three lines of defense (3LoD) model, and appreciate the linkage between the work they do and how that connects to other parts of the review process (QC, ERM, internal audit, regulators, external audit). Bankers equipped with the knowledge of how the lending ecosystem works are less likely to bristle at the required documentation.

Leaders should continue to support bankers as they learn from mistakes.
Becoming an effective lender is not an easy process, and it usually involves making mistakes and learning from them. In the current zero tolerance environment, it is incumbent upon both lenders and bank leadership to remember that while a business may look for zero defects in regulatory or compliance metrics, a “never make a bad loan” standard would be detrimental for both banks and the economies they serve. Banks are in the business of taking and managing risk and the occasional defaulted loan is the result of this risk-taking. Lenders need to be empowered to use their pens, and management needs to support them and differentiate between items with a zero tolerance standard and ones with more of a risk-reward determinant of what is appropriate.

Bankers should always remember the customer.
Bank leaders must ensure that their team members comply with rules without losing sight of the customer experience. It is essential for lenders to meet compliance standards and document the decision while making the process consistent and seamless for subsequent reviewers to evaluate. Equally important is staying focused on the customer’s needs and helping them achieve their goals.

Hear more on this timely topic during an informative session,
The Challenges of Being an Underwriter Today, at this year’s Annual Risk Management Conference on November 12–14 in Boston, MA.

Please look for the next Industry Insight on Tuesday, August 29, Current Appraisal Issues.

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