The FDIC has just released their winter edition of their publication Supervisory Insights. This twice-a-year publication is a great resource for community banks to understand both banking trends and regulator expectations. Regardless of who a bank’s primary regulator is, Supervisory insights is typically a valuable resource for the compliance management system of any banker.
After a brief introduction from the Director of the Division of Risk Management Supervision, the publication has three articles:
Credit Management Information Systems: A Forward-Looking Approach
Underwriting Trends and Other Highlights from the FDIC’s Credit and Consumer Products/Services Survey
Overview of Selected Regulations and Supervisory Guidance (Regulatory and Supervisory Roundup)
While some editions of Supervisory Insights focus on regulatory compliance, this edition appears to have a primary focus of risk management. That said, it is a valuable tool that should be passed on to someone in your organization who handles risk management outside of the compliance world most of us live in.
Credit Management Information Systems: A Forward-Looking Approach
This article discusses how a credit management information system is a critical part of a bank’s overall risk management system. One of the biggest takeaways from this article is that the FDIC discusses how many current credit risk management practices are all after-the-fact indicators of a credit quality issue. Credit performance metrics like delinquency ratios, charge-off rates, restructured loans, and nonaccrual loans are all important parts of a credit management information system, but are generally “lagging” indicators, meaning that they identify the bank’s current asset quality and overall financial condition, but do not help to understand emerging risks.
In this article, the FDIC challenges financial institutions to incorporate more forward-looking indicators to help proactively manage and assess risks facing a financial institution. This article concludes with a list of effective practices for forward-looking credit management that include best practices in loan policy exceptions, underwriting trends, loan grading, concentrations, and risk appetite.
This valuable article should be provided to senior lenders, chief risk officers, and loan committees as applicable.
Underwriting Trends and Other Highlights from the FDIC’s Credit and Consumer Products/Services Survey
For close to a decade now, the FDIC has made a practice of providing each examined bank with a credit survey at the conclusion of their risk management exams. This survey is designed to help examiners gather insight on underwriting practices, new and evolving banking activities and products, commercial real estate market conditions, and funding practices. In this edition of Supervisory Insights, the FDIC shares their recent Credit Survey results by focusing on lending activities such as trends in underwriting, loan growth and funding. In short, the results imply that credit risk and liquidity risk are increasing, based on a higher frequency of risks associated with loan growth, out-of-territory lending, and credit funding concentrations.
As this article also has a focus on credit risk management, it would be best shared with senior lenders, chief risk officers, and loan committees.
Overview of Selected Regulations and Supervisory Guidance
This edition of Supervisory Highlights concludes with an overview of recently released regulations and supervisory guidance. This list can be a valuable tool for regulatory change management in any financial institution.
The full version of the FDIC's Supervisory Insights can be found here.