Changing Credit Culture in a Dynamic Regulatory Environment

Regulatory expectations continue to increase, including credit management challenges like concentrations, CRE, CECL, and other proactive risk management practices. A healthy credit culture can more easily adapt to meet these challenges. When an institution establishes their credit and data management processes properly, they are able to fulfill their regulatory requirements and establish a robust credit culture that will help them thrive. But how does an institution get there?

During the latest installment of RMA's Credit Risk Management Audio Conference Series, Peter Cherpack, EVP and partner, Ardmore Banking Advisors, and Brian Jones, president/CEO and director, The First National Bank of Elmer, stressed the importance of banks to view imposed change as an opportunity to create improvement.

Imposed change can lead to management and employees thinking outside of the box and considering new practices and ideas. Executive endorsement of process changes to meet or exceed regulatory expectations is an opportunity for management to solve both a significant business problem and show commitment to an enhanced credit culture.

Regulatory expectations for proactive credit management require bank staff across business silos to work together with direction from credit professionals. Proactive regulatory risk management implementation requires robust, accessible historical data, and enhanced data capture and control processes on an ongoing basis. In both stress testing and CECL, there is significant room to apply good judgment to meet imperatives while keeping the values and the best interest of the bank in mind. Enabling the bank to create its own standards and practices, with approval from auditors and examiners, helps cement a bank's ability to demonstrate good judgment and strong credit culture.

Regulatory expectations can create fresh approaches to traditional practices like underwriting, loan coding, reporting, and reserve calculation. New practices require staff education, specific training, new tools, and experimentation. Banks that make a commitment to learning effective ways to comply with expectations can create a competitive advantage.

Banks must review their credit processes, credit data gathering and coding standards, data storage, controls, and accessibility. In complying with rules like CECL, bankers are challenged to create and justify new reserve and loss calculation models and perform justifiable economic projections in new ways. Having the right people, talent, tools, leadership, and education goes a long way to assist the bank in meeting expectations.

Join us for the next installment of the Credit Risk Management Audio Conference Series on April 10, Concentration Risk Management.

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