It is understandable that a bank may feel pressured to ease underwriting standards in today's competitive environment. Nonetheless, bank management should keep in mind that, regardless of the current environment, the loans and leases the bank underwrites must be consistent with its long-term strategic portfolio objectives and the level of risk the bank is willing to tolerate over the long run. While that focus is still important, the OCC believes banks should also view risk management in terms of the entire portfolio. An effective loan portfolio credit risk management process enables management to identify, measure, monitor, and control credit risk. The OCC encourages bankers to review these elements to determine the most appropriate way to incorporate the concepts into their own portfolio credit risk management process.
Every bank has a credit culture, whether articulated or implied.
Consistently high performing banks have a credit culture that is clearly understood throughout the organization. Senior management and the board should periodically assess whether employees' understanding of the bank's credit culture, and their resulting behavior, conform with the desired standards and values for the bank. Independent audit and internal loan review functions can help in this assessment. Because the credit culture influences every aspect of the credit process, including credit risk selection and underwriting, a bank's sales strategies must be coordinated with its credit risk management objectives. In addition, compensation systems for the lending area should reward the kind of behavior that is consistent with long-term credit quality objectives.