Meeting the Policy Exception Challenge

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In order to compete and retain customers, banks continue to ease the structure and/or terms of the loans they offer. The Office of the Comptroller of the Currency’s (OCC) spring 2017 Semiannual Risk Perspective provided additional detail on this trend, stating that credit risk was increasing due to “rising loan policy exceptions, increasing loan-to-value (LTV) ratios, weaker loan controls or covenant protections, higher concentrations in [commercial real estate] loans, etc.” Regulators are focusing on those areas noted that are contributing to this increase in credit risk. This paper discusses one of those elements — policy exceptions — including the components required to create an effective policy exception system and its potential benefits.

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