3 STEPS TO EVALUATE CREDIT TRENDS AND RISK MANAGEMENT By Erica Crain, Managing Principal of Value & Risk Services, CLA When a message is repeated, it’s likely intended to carry some weight. In this regard, the federal banking regulators have issued more than a “friendly reminder” by placing credit risk in the top examination priorities for the year. Additional emphasis was focused on assessing how banks are identifying and responding to credit risk as economic conditions evolve. Then, in February 2024, news headlines reiterated the significance of credit risk with an update about New York Community Bank and a lacking loan review program and deteriorating credit quality trends for banks has come to the forefront. Credit risk has been in the spotlight for years. In May 2020, federal regulatory bodies came together and issued guidance about the significance of credit risk review systems. In 2021 and 2022, financial institutions got a heavy dose of guidance on the Allowance for Credit Losses, which included key principles around credit risk identification and management. Last year, the federal regulatory agencies issued guidance on loan accommodations and workouts in anticipation of a commercial real estate meltdown. The messaging has been quite strong. So, how is a weak loan review program a critical matter in 2024 for one of the largest financial institutions in the United States? Working with financial institutions across the nation, a common question asked is about the reassessment of credit risk appetite, culture, risk reduction strategies, 17 The CommunityBanker
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