How to Instill Ethics in Commercial Lending: Understanding Due Diligence
-
Upload
colleen-beck-domanico -
Category
Business
-
view
107 -
download
1
description
Transcript of How to Instill Ethics in Commercial Lending: Understanding Due Diligence
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
1
JOIN. ENGAGE. LEAD.
HOW TO INSTILL ETHICS IN COMMERCIAL LENDING Understanding Due Diligence
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
2
JOIN. ENGAGE. LEAD.
ASPECTS OF DUE DILIGENCE
Due diligence Process
Multiple perspectives
Astute questions
Standards Awareness
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
3
JOIN. ENGAGE. LEAD.
UNDERSTANDING DUE DILIGENCE
Approving and executing high-dollar
loans is a risky responsibility.
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
4
JOIN. ENGAGE. LEAD.
UNDERSTANDING DUE DILIGENCE (CONT.)
To avoid taking on dangerous loans, you must be thorough and detailed in
your analysis of potential relationships.
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
5
JOIN. ENGAGE. LEAD.
UNDERSTANDING DUE DILIGENCE (CONT.)
Due diligence is the process you use gather the information
you need to analyze a borrower's creditworthiness.
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
6
JOIN. ENGAGE. LEAD.
THE DUE DILIGENCE PROCESS
Develop a management, business, and
ownership profile of the company.
Collect financial information to support the
financial analysis.
Perform industry research.
Conduct third-party credit
checks to profile payment history.
Execute lien searches and profiling assets, including
environmental assessments, to support collateral qualification.
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
7
JOIN. ENGAGE. LEAD.
MAINTAIN HIGH ETHICAL STANDARDS
The greatest repayment risks are hidden risks that a thorough investigation
should disclose.
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
8
JOIN. ENGAGE. LEAD.
MAINTAIN HIGH ETHICAL STANDARDS (CONT.)
When poor due diligence allows a risk to remain
undiscovered, your bank has no opportunity to evaluate the risk or
mitigating factors so that they can be managed
through loan structuring.
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
9
JOIN. ENGAGE. LEAD.
MAINTAIN HIGH ETHICAL STANDARDS (CONT.)
Maintaining the highest ethical standards
in performing due diligence is essential to protecting your
bank from unknown but discoverable risks.
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
10
JOIN. ENGAGE. LEAD.
POSSIBLE ETHICAL DILEMMAS IN THE DUE DILIGENCE PROCESS
• Performing due diligence is time consuming and often feels tedious.
Time consuming
• You might feel awkward when pressing business managers and owners for information they may find intrusive or prefer not to reveal.
Relationship discomfort
• Fear of losing amicable relationships or losing deals to competitors invites ethical dilemmas. Fear
• Pressure to meet closing deadlines also invites ethical dilemmas. Pressure
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
11
JOIN. ENGAGE. LEAD.
AWARENESS
The first step in addressing ethical dilemmas within the due diligence process is to simply be aware that
they exist.
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
12
JOIN. ENGAGE. LEAD.
AWARENESS WARDS OFF CATASTROPHE
Practicing these qualities makes the difference between
financial stability and financial catastrophe.
Be attentive
Be inquisitive
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
13
JOIN. ENGAGE. LEAD.
ASK QUESTIONS When faced with a compromising situation, ask yourself a few simple questions to help you decide whether a specific action would be considered an ethical violation.
Is this action honest?
Is this action being taken in the best
interest of the client?
Will this action undermine the authority of my
supervisor?
Will this action undermine the credibility of my
employer?
Is this action in compliance with
legal and regulatory requirements?
Would I be comfortable if this
action were reported in the newspaper?
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
14
JOIN. ENGAGE. LEAD.
MULTIPLE PERSPECTIVES INFLUENCE ETHICAL DECISIONS
Important ethical decisions often hinge on the perspectives
of the people involved.
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
15
JOIN. ENGAGE. LEAD.
TAKE THE ETHICS QUIZ!
Download the short case study (http://landing.rmahq.org/SSQuiz).
It illustrates how different roles approach the same scenario.
Then take our 5-question quiz to see how well
you’d do when faced with an ethical dilemma.
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
16
JOIN. ENGAGE. LEAD.
SHARE THIS PRESENTATION
Visit http://www.rmahq.org for information on risk management
Visit our blog at http://rmablog.rmahq.org/ RMA is a member-driven professional association whose sole purpose is to advance sound risk principles in the financial services industry.
RMA helps its members use sound risk principles to improve institutional performance and financial stability, and enhance the risk competency of individuals through information, education, peer sharing, and networking.
Learn about membership now.