Highlights of the RMA Risk Management Conference

RMA Journal, The, Nov, 2003

Mikkalya Murray, EVP/CCO, Harleysville National Bank, and Gerald Elias, SVP, Mercantile Safe Deposit and Trust Company, shared their successful techniques for loan workouts. Have a red flag checklist for lenders to use monthly, said Murray. Rotate lenders through Special Credits, advised Elias. Clarity is critical, they agreed.

Dev Strischek, SVP, SunTrust Bank, quickly ran through a myriad of unique risks in lending to contractors, providing specific underwriting considerations and covenants as well as six warning flags. Just three underwriting considerations: 1) don't lend to a contractor whose AR/AP ratio is less than 1.00; 2) do lend based on downside cash flow and take collateral and guarantees; 3) lend to contractors only in your target market and whose projects are in that market.

Anyone who thought a presentation on the USA PATRIOT Act and money laundering would be a snore hadn't met James Richards (above, left), BSA Officer, FleetBoston Financial. Giving the Act its due, Richards spent much more time regaling the audience with tips for using the surface Web, the invisible Web, and the opaque Web to perform due diligence cheaply and effectively. Laughs mixed with astonishment were the hallmarks of this fast-paced session.

Something to think about: Since 1992, 100 lawsuits have been filed by borrowers; 85% involved loans approved by a bank's board. Yet we ask board members, most of whom have no background in credit, to make decisions on the bank's riskiest loans--exceptions to loan policy.

Excerpts from Keynote Address by Bank of America Chief Risk Officer Amy Woods Brinkley

Will we make history? Or repeat history? When we turn our focus to managing risk and reward, the imperative today is risk management that is holistic and comprehensive--covering market, operational, and credit risk. The good news is that our tools are far better for doing these jobs that have grown so complex. Today we analyze credit risk by geography, industry, product, and obligor. We diversify that risk through the capital markets. So we have more opportunities to define our appetite for different types of risk and mitigate or move out those we don't want.

However, will we fulfill the full potential of our roles and opportunities? We stand at what may be precisely the most dangerous time in the economic cycle. Out market and economic data suggest that we are amid a slowly building economic recovery. But that's exactly what makes this a dangerous time. The decisions we make and the actions we take today will shape not just the cycle but how our companies perform through it.

This is the time we must ask ourselves:

* Is your client selection what it should be?

* Are your risk ratings accurate and timely?

* Are you maintaining a balance of risk and reward?

* Do you have processes in place to give you early warning signals while there's still time to mitigate the risk?

* Are you confident in your business continuity plans?

* Have you fully assessed your legal risk?

* Do you understand the market risks embedded in your VaR calculations?