CASE STUDY: BANK LOAN ORIGINATION PROCEDURES

Background

According to a Bain & Company study, from 2011 to 2016, major banks lost nearly $210 billion from operational risk events, mostly from client interactions and process management. They identified unclear and sometimes contradictory procedures as one of the underlying problems contributing to these losses.

Client Need

During a routine internal audit, a regional bank identified several operational errors made when processing commercial loans extended to small businesses. They noticed that a few loans were made to borrowers who should have been rejected. They also identified improper and missing documentation that made the bank’s position in the loan unclear. The bank was preparing for a regulatory bank audit and was under significant pressure to comply with all banking regulations. Reviewing their loan procedures documentation, the bank discovered unclear and contradictory instructions. Bank management was extremely worried about the potential for losses on the problematic loans. They were also worried about the risk of bank regulatory sanctions against the bank for procedural errors made when extending commercial loans to small businesses. The audit team discovered that the loan procedures documentation had been compiled from the work of 4 different operational workers who worked independently on the documentation in different areas of the bank. The audit team recommended that the documentation be rewritten — by professional writers in consultation with bank subject matter experts — to create clear, consistent, and concise procedures for documenting loans.

EDC Solution

Essential Data provided 2 technical writers with significant experience in banking and working with policies and procedures in a regulatory environment. In addition to rewriting the loan procedures documentation, the writers also developed a style guide for creating future documentation.

Benefits for the Client

1. The bank completed the rewrite in time for the regulatory bank audit.

2. The banking auditors were impressed with the clarity and organization of the bank’s loan procedures documentation.

3. The bank began to see faster turnaround times processing loans with fewer errors.

4. The bank had a blueprint for creating clear, consistent, and concise documentation in the future that would help the bank remain compliant with banking regulations.