Assessing a bank’s culture is not an easy task, but there clearly is an increased emphasis on culture that is part of the regulators' broader focus on “heightened standards.” Learn what it takes to have a strong credit culture. Read about these 10 credit culture factors to assess your institution's credit culture.

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COMPONENTS OF A
ROBUST CREDIT CULTURE
By the RMA Credit Risk Council
10

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IMPORTANCE OF A
STRONG CREDIT CULTURE
There has been much
regulatory focus over the past
year on the importance of
conduct and culture in financial
institutions.

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IMPORTANCE OF A
STRONG CREDIT CULTURE (CONT.)
• In an op-ed that appeared in The Clearing House’s
quarterly journal in late 2014, Comptroller of
the Currency Thomas Curry wrote:
“Business practices that have caused
problems were made possible by
weaknesses in the organization’s
risk management and risk culture.”

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IMPORTANCE OF A
STRONG CREDIT CULTURE (CONT.)
While Curry and other regulators
have admitted that assessing a
bank’s culture is not an easy
task, there clearly is an
increased emphasis on culture
that is part of the broader focus
on “heightened standards.”

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IMPORTANCE OF A
STRONG CREDIT CULTURE (CONT.)
• Curry addressed this culture concern and its relation to
heightened standards at a recent regulatory symposium
sponsored by American Banker:
“When I use the word culture
it’s really the establishment
of standards and the
enforcement of those standards.”

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IMPORTANCE OF A
STRONG CREDIT CULTURE (CONT.)
• Lest the spotlight on culture be seen as limited only to large
banks, Curry set the record straight in his op-ed article.
Indeed, we have seen improper business
practices and deficient risk management systems
at community banks. But those smaller institutions
don’t get the kind of public attention
that hurts the industry’s reputation, nor do
they have the same kind of outsized impact
upon the economy as large banks.

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IMPORTANCE OF A
STRONG CREDIT CULTURE (CONT.)
While many of the public comments
by regulators have focused more
broadly on risk culture,
there certainly is an implied
expectation that banks will have a
strong credit culture.

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10 KEY COMPONENTS
OF A ROBUST CREDIT CULTURE
10 key
components
that should
be evident in
every bank,
regardless of
size:
• Credit culture starts at the top.
• Everybody owns risk.
• Systems and processes must be robust.
• There must be room for good judgment.
• There is a commitment to training and
education.
• Incentive systems need a risk
component.
• Core competencies should be the focus.
• The credit message is reinforced.
• Line of business growth is managed
prudently.
• Policy and limits are followed.

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1. CREDIT CULTURE STARTS AT THE TOP
The CEO and executive management set the tone for a
strong credit culture.
• They frequently talk about the importance of
managing lending activity within the bank’s
credit appetite.
• They defer to the risk organization for setting
credit risk standards.
• This support is evident through both words and
deeds.

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2. EVERYBODY OWNS RISK
There must be a strong reinforcement that everyone involved
in the lending process owns risk management.
Credit risk is not just the responsibility of those in
underwriting, adjudication, and loan services.
Those in client-facing roles must also take an active
role in supporting the bank’s credit culture internally
and externally.

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3. SYSTEMS AND PROCESSES MUST BE ROBUST
• A strong credit culture will be
evidenced by systems and
processes that support excellent
execution and servicing.
• Strong controls must be in place
to ensure proper measurement,
inspection, and accountability.

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4. THERE MUST BE ROOM FOR GOOD JUDGMENT
While controls must be strong, a sound
credit culture leaves plenty of room for
good judgment by experienced bankers.
A credit process that is too driven by
models and rules can actually lead to
undesirable outcomes.

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5. THERE IS A COMMITMENT TO
TRAINING AND EDUCATION.
Everyone involved in the lending
process should receive regular
continuing education around
underwriting skills, products, laws
and regulations, and bank policy.

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6. INCENTIVE SYSTEMS NEED
A RISK COMPONENT
Credit officers should not be
the only ones with a risk
component in their respective
incentive plans.
Those in client-facing roles
should have credit quality
measures included to augment
revenue goals.

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7. FOCUS ON CORE COMPETENCIES
A bank that
tries to be all
things to all
borrowers
will find itself
in trouble
when times
get tough.
• Ensure that the bank focuses on
lending segments of core
competency, staying away from
areas that are not well
understood.

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8. THE CREDIT MESSAGE IS REINFORCED
A solid credit culture requires
persistent and consistent
communication of the credit message.
Those in credit and sales leadership
roles must regularly emphasize the
bank’s credit appetite to avoid
potentially bad lending outcomes.

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9. LINE OF BUSINESS GROWTH
IS MANAGED PRUDENTLY
A strong credit culture includes a
robust portfolio management
process that ensures proper
diversification and granularity.

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10. POLICY AND LIMITS ARE FOLLOWED
• Exceptions to policy are
sometimes made, but they are
well documented and tracked.
Exceptions
• Limits are followed very closely
and not compromised, even
when revenue opportunities will
be missed.
Limits

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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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