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Oct 09
2008

Loan Policy and Loan Losses�A Weakened Link?

Posted by Ed O'Leary in Talking Credit

It seems to be an article of faith among bankers that a strong loan policy is the ultimate defense against poor asset quality.
 
Bank supervisory agencies have been diligent and consistent about the need for strong policies and internal controls.
 
So why do we continue to hear about persistent anecdotal evidence of significant if not serious asset quality issues?
   
The problems of the very large banks and their involvement in subprime lending do not appear to be related to the problems community and smaller regional banks are facing.
 
What is missing from the traditional equation of "strong and consistently applied policy equals strong and consistent asset quality"? Even the cursory comparisons to earlier times, especially the mid-to-late 80s in oil and gas and real estate lending, don't seem to shed much light on the current malaise. Will there be some corporate and reputational wreckage that needs understanding here and now before our industry can truly begin to heal?
 
About Ed O'Leary:

oleary.jpgVeteran lender and workout expert O'Leary spent more than 40 years in bank commercial credit and related functions, working with both major banks as well as community banking institutions. He earned his workout spurs in the dark days of the 1980s and early 1990s in both oil patch and commercial real estate lending.

    O'Leary began his banking career at The Bank of New York in 1964, and worked at banks in Florida, Texas, Oklahoma, and New Mexico. He served as a faculty member and thesis advisor at ABA's Stonier Graduate School of Banking for more than two decades, and served as long as a faculty member for ABA's undergraduate and graduate commercial lending schools.
    Today he works as a consultant and expert witness, and serves as instructor for ABA e-learning courses and a frequent speaker in ABA's Bank Director Telephone Briefing series. You can hear interviews with Ed about workouts here . You can e-mail him at etoleary@att.net. O'Leary's website can be found at www.etoleary.com.


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Lloyd Benton said:

I cannot agree more.
 
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December 04, 2008
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