The loan committee: up close & personal

RMA Journal, The,  April, 2004  by Beverly J. Foster

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"I've often wondered whether or not a true 'vote' should be taken on loan proposals at the committee level," says Anderson. "But I've concluded that having each member vote would result in many loans not being approved. It's always safe and easy to vote no. In the end, the head of the committee has to weigh the positives of the loan proposal as presented by the lending officer against the negatives (if any) expressed by the committee members."

Dohmen says that Equitable will continue to seek improvement in streamlining the loan committee process as well as continue to improve loan quality, making adjustments as needed to minimize the bank's risk. Murray follows suit, with technology on the front burner. "We want to continue to grow earning assets while balancing the credit risk and approval fulfillment processes. In other words, we want to make safe and sound loans!" And Barrett sees the need to focus more on enhanced training with loan committee members and will make formalization of training a strategic target in coming months.

Reports of Its Death Are Premature

So it appears that the loan committee is alive and well in the community bank. There may be technological enhancements to help streamline the process, as well as other improvements to the committee structure and process as institutions grow and become more complex. However, the value of feedback and the learning experience is indisputable. And the loan committee, in good times and bad, has proven itself able to ensure the safety and soundness of community banks throughout the U.S. and the world.

Notes

(1) OnePoint, Baker Hill's 32 bit, consolidated database, is designed with four integrated modules for customer relationship management: Enterprise Sales Pipeline Management, Financial Statement Analysis, Collateral & Exception Tracking, and Relationship Pricing & Profitability. The "virtual loan committee" works by allowing loan committee members, located in a number of cities throughout the state, to review loans via e-mail without having an actual meeting.

(2) Risky shift syndrome is when decisions are made jointly, such as in a committee environment. There exists the risk that an individual lender will "shift" the responsibility for the decision to the group, thus negating his or her personal accountability for the loan decision. If the deal goes bad, it was "the committee's fault."

Beverly Foster is editor of The RMA Journal.

COPYRIGHT 2004 The Risk Management Association
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