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Supervision News Flash

May 2019

Credit Risk Management Hot Topics Webinar – Recap

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On May 15, the Richmond Fed held the fifth in a series of webinars designed to raise awareness within the Fifth District of issues and trends examiners are seeing as we conduct our supervision activities. We chose credit risk management hot topics as two of our top five identified risks facing community and regional banking organizations related to various aspects of credit risk management. Senior Manager Chris Noack led the presentation and addressed two specific topics: weakening, or loosening of, credit standards and the continued elevation of commercial real estate (CRE) concentrations in our District. 

Noack shared with the audience our thought processes around how we determine our key risks and why we chose to highlight these two risks. He indicated that the metrics we have available to us are not signaling a big build up in risk. Rather, it is the anecdotal evidence from field examiners and bankers, horizontal review results and examination report trends that have caught our attention.

Listen to the webinar to hear more about our concerns in order to evaluate your own practices and determine whether you want to make any adjustment, and hear about the sound practices we have observed at a number of community and regional banks.   

The webinar covers the following: 

  • A reminder that weak controls led to problems in the last recession;
  • Bankers are sharing stories with us about how they observe credit standards loosening;
  • Our own horizontal reviews reveal some loosening;
  • Policy exceptions can be a leading indicator that risks are increasing;
  • Our observations around sound exception monitoring practices;
  • Lessons learned from the financial crisis about CRE concentration risk management; and
  • Examiner observations around strong risk management practices used to manage CRE exposures at highly concentrated banks.

As noted earlier, our goal is to share trends and observations with the industry early enough to allow you to thoughtfully consider your own practices. While bank performance metrics do not necessarily reveal any significant problems at time, it may be the perfect time to give yourself a checkup. Let your Federal Reserve portfolio team or central point of contact know if you would like to discuss the contents of the webinar.  

For an additional resource related to the webinar, our prior executive vice president of supervision, Jennifer Burns, wrote this View from the District in a 2017 issue of the Federal Reserve’s Community Banking Connections titled “Managing Risks of Commercial Real Estate Concentrations.”

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