Being a Banker Today: The Changing Role of the Underwriter

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BEING A BANKER TODAY:

THE CHANGING ROLE OF THE

UNDERWRITER

An Excerpt from “2017 Industry Insights:

Perspectives from the Front Line”

by RMA’s Credit Risk Council

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THE BANK UNDERWRITER’S ROLE

• Before the financial crisis, the

primary role of the bank

underwriter was to make good

decisions in deploying the bank’s

resources to help loan applicants

achieve their goals.

• The scorecard for how well the

banker or underwriter did their job

could be seen in their unit’s

income statement.

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THE BANK UNDERWRITER’S ROLE (CONT.)

In recent years, documenting the rationale for the credit decision has become equally as important.

Substantiating the reason for an approval or decline is essential for a number of reasons, including:

• Consistency.

• Fair lending.

• Making the job of subsequent reviewers easier.

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THE CHALLENGE

The challenge is communicating to

today’s underwriters and bankers that

both the decision and the

documentation are important.

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THE CHALLENGE (CONT.)

Failing to make that communication puts the

industry at risk and demoralizes the current

crop of bankers who might not feel the same

exciting connection to their customers’

successes.

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THE CHALLENGE (CONT.)

Taken to its worst extreme,

bankers could decide that

in some cases saying “no”

is easier than doing the

necessary work to

document the justification

for a “yes,” especially on a

complex transaction.

That would be a negative

outcome for all parties—the

banker, the bank, the

borrower, the industry, and

ultimately the economy.

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What, then, should a banker

or a leader do?

RMA’s Credit Risk Council

recommends the following.

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UNDERSTAND THE LINKAGES BETWEEN THE

DECISION AND THE SUBSEQUENT REVIEW(S)

Bankers at all levels should:

• Understand the importance of the three-lines-of-defense model.

• Appreciate the linkage between the work they do and how that

connects to other parts of the review process (QC, ERM,

internal audit, regulators, external audit).

Bankers equipped with the knowledge of how the lending

ecosystem works are less likely to bristle at the required

documentation.

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LEADERS SHOULD CONTINUE TO SUPPORT

BANKERS AS THEY LEARN FROM MISTAKES

Becoming an effective

lender is not an easy

process, and it usually

involves making mistakes

and learning from them.

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LEADERS SHOULD CONTINUE TO SUPPORT

BANKERS AS THEY LEARN FROM MISTAKES (CONT.)

In the current zero tolerance environment,

it is incumbent upon both lenders and

bank leadership to remember that while a

business may look for zero defects in

regulatory or compliance metrics, a never-

make-a-bad-loan standard would be

detrimental for both banks and the

economies they serve.

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LEADERS SHOULD CONTINUE TO SUPPORT

BANKERS AS THEY LEARN FROM MISTAKES (CONT.)

Banks are in the business of

taking and managing risk and

the occasional defaulted loan is

the result of this risk-taking.

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LEADERS SHOULD CONTINUE TO SUPPORT

BANKERS AS THEY LEARN FROM MISTAKES (CONT.)

Lenders need to be

empowered to use their pens,

and management needs to

support them and differentiate

between items with a zero-

tolerance standard and ones

with more of a risk-reward

determinant of what is

appropriate.

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BANKERS SHOULD ALWAYS

REMEMBER THE CUSTOMER

Bank leaders must ensure their

team members comply with

rules without losing sight of the

customer experience.

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BANKERS SHOULD ALWAYS

REMEMBER THE CUSTOMER (CONT.)

It is essential for

lenders to meet

compliance standards

and document the

decision while making

the process consistent

and seamless for

subsequent reviewers

to evaluate.

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BANKERS SHOULD ALWAYS

REMEMBER THE CUSTOMER (CONT.)

Equally important is staying

focused on the customer’s

needs and helping them

achieve their goals.

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The Credit Risk Council supports

professionals who are responsible for

establishing, maintaining, or carrying

out credit risk management policies.

The council focuses on funded and

off-balance-sheet risk management,

including capital markets activity, and

other forms of credit intermediation

and risk mitigation.

About RMA’s Credit Risk Council

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For additional information about

credit risk management,

visit

www.rmahq.org/credit-risk/

LEARN MORE

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