Commercial and Industrial Lending

Commercial and Industrial, or C&I lending has long been a cornerstone product for many banking organizations.  Also known as working capital, line of credit or asset based lending, C&I lending provides bank customers with open lines of credit that can vary up and down depending on collateral availability and the structure of the line.

The percentage of the portfolio in this area has customarily been greater at larger banks than at smaller domestic chartered commercial banks.  However, the benefits of C&I lending such as control of the entire banking relationship and cross marketing opportunities like cash management services and the holding of commercial deposits have enhanced the overall profitability of this area and made entry much more attractive for middle market and smaller financial institutions particularly in relation to real estate or installment lending, as they strive to expand their portfolios.

Recently, publications of both the Federal Reserve and the OCC have cited growth in C&I lending in bank portfolios and have alerted their supervisory and examination staffs about the increasing demand for such credit.  They have noted that competition for limited C&I lending opportunities continues to intensify, eroding underwriting standards and reducing pricing for risk.

This has been especially evident in the leveraged lending market.  For example, market data on syndicated loan underwriting indicates weakening covenant protection and higher leverage and there are indications that underwriting standards for middle-market C&I lending have also have shown signs of slippage as competition has become more aggressive.  Overall the regulators have referenced their supervisory guidance and cited, in some detail, the importance of having sound risk management programs and practices for institutions that are entering or expanding their activities in this type of lending.

For example, risk mitigation principles and practices include; written policies and procedures relating to the overall risk management practices, staff and lending expertise consistent with the size and complexity of the portfolio, sound underwriting and fundamentals directly related to the nature of the portfolio and operating systems that are geared to the nature of the portfolio.

Organizations that have expanded their portfolios in the C&I Lending area or are contemplating that step without adequate systems and controls in place should expect increased scrutiny as growth and activity in this area is evident in regulatory filings or as examination teams prepare for on and off-site visits.  Without evident and appropriate attention to risk management and policy and procedural shortcomings when they are disclosed supervisory actions are likely.

SRS (Smith Regulatory Strategies, LLC) can assist organizations of all sizes by:

  • assessing and describing their vulnerability to regulatory risks and possible issues of concern associated with their current or contemplated levels of C&I Lending or other areas for that matter
  • assisting in the development and establishment of essential risk management and mitigation programs for this and other types of lending that are consistent with industry standards and regulatory guidance and expectations
  • working with clients to develop detailed Action Plans that are targeted to addressing identified shortcomings in current systems and approaches
  •  assisting in all the aspects associated with the effective and timely implementation of those Action Plans such as the monitoring of Action Plan progress, reporting to management, regulators and other stakeholders and conducting verification processes to insure that corrective actions have taken place
  • structuring and providing training associated with the implementation of new policies and lending processes and other regulatory matters
  • assisting in the design and implementation of organization structures
  • providing insight into qualifications associated with staffing levels and needed expertise
  • serving as a subject matter expert (SME) in regulatory matters such as examination and supervisory policy and guidelines
  • providing guidance with regard to dealing with supervisory enforcement actions and the associated regulatory expectations
  • insights into developments such new legislation and new or updated regulations and their impact such as stress testing and prudential standards, and
  • assistance in formulating strategic direction, needed programs and more tailored actions in response to new legislation and regulations as well as ongoing developments in examination approaches

The SRS Team has diverse regulatory experience, skills and perspective that are consistent with the effective delivery of the capabilities that are described above.

For example, Craig Stirnweis has more than thirty-five years of regulatory experience including almost twenty years with the OCC as a field examiner in the Northwest and as a Deputy Comptroller in Washington D.C. working with supervisory policy and problem banks.

More recently and for the past 15 years, he was a Director at KPMG providing guidance to foreign banks operating in the U.S. (FBOs) and domestic banks and bank holding companies.  During this time he worked in both KPMG’s New York and Washington D.C.

His KPMG engagements typically included regulatory diagnostics for banks and branches in New York in such areas as credit risk, BSA, regulatory compliance systems, risk management programs, the development and implementation of regulatory improvements and new Federal Reserve guidance.

Among his accomplishments were involvement in the development of KPMG’s Credit Review Program and initial interpretation of the requirements of the Dodd-Frank legislation.