As bank supervisors, we know that rapid growth should always motivate a closer look at an institution. Our most recent experiences tell us to look even closer. Rapid asset growth often masks many ills. Extraordinary examination measures are required in these instances. Management information systems that do not provide sufficient information to properly analyze the performance of a growing portfolio should raise supervisory concerns.
Capital is the main lever for controlling growth.
Illusory capital can feed explosive growth - and lead to catastrophic losses. Three, engaging in nontraditional lending activities without appropriate underwriting, loan administration, controls or sufficient management expertise. Four, changing the institution's business plan significantly, often basing the new plan on unrealistic assumptions. Often a shift in business plans follows a change in the control of the institution, where eager new owners try to extract as much value as they can, as quickly as they can. Five, entering third-party servicing arrangements that leave the financial institution at risk.