Policy and procedures importance of updating

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Policies and procedures should serve as a framework for all major credit decisions and actions, cover all material aspects of credit risk, and reflect the complexity of the activities in which a bank engages.

While risk is inevitable, banks can mitigate credit risk through the development of and adherence to effective loan policies and procedures.

Consistent with the lending strategy, the board should identify not only which types of loans are permissible and impermissible but also the types of loans the bank will and will not underwrite regardless of permissibility.

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It is important to note that a policy differs from procedures in that it sets forth the plan, guiding principles, and framework for decisions.A few of the loan types listed, including home equity Undesirable or impermissible lending activity should also be identified within the loan policy.This will ensure that management and lending staff members do not spend undue time or resources cultivating relationships or pursuing loan types that are not aligned with the bank’s goals or strategy.One place to start when determining which key elements should be incorporated into the loan policy is with the regulatory agencies’ examination manuals and policy statements.This article relies primarily on the Federal Reserve’s which organizes and formalizes the examination objectives and procedures that communicate supervisory guidance to bank examiners on a wide range of topics.

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