This Month's Headache: Examinations
Examinations have been a trying experience in this environment. In your own recent exam, were there any steps your bank took to help ease the understandable tension?
This Month's Remedies: Prescribed by Michelle Gula and Jay Brew
Proactive at Every Level
The key for regulators is to see management being highly proactive. This is accomplished through a culture of due diligence that begins at the board level. This sets the bank to always be thinking ahead in areas where the regulators have the most concerns.
A Watch List
A credit cycle is always difficult; identifying issues with individual loans – sooner than later – is a must in this environment.
A watch list for quickly and proactively setting your sights on problem loans (before the regulators) may seem obvious, but, believe it or not, this is sometimes not a standard management practice. It has to be, especially in analyzing all loans in a certain loan type where there have been issues.
The Loan Policy
The best time to fully understand shortfalls in the underwriting process is in the thick of loan problems. The loan policy, too, must be proactively reviewed to provide the board and the regulators with the sense that future issues have been addressed before and not long after the fact.
Capital
Capital is another area where regulators have wanted to see a capital plan. The capital plan should be an in-depth analysis of how the bank will grow and be capitalized in the future. This not only includes projected capital, but should be imbedded with a dividend plan, a contingency plan for raising equity, and the risk to capital.
The risk to capital should include the impact of changing interest rates to capital, liquidity risk, and the future mix of loans that is credit shocked in a worst case scenario. The capital plan will also be the foundation for how the bank strategically looks forward and plans for a prosperous future.