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Great expectations: Loan review system regulations and how to adhere to them

Dev Strischek
May 19, 2023
Read Time: 0 min

Does your loan review system meet regulatory expectations?

Read more for specific objectives every loan review system should meet.

You might also like this webinar, "Return to basics: Asking the right credit risk questions."



How regulators define successful loan reviews

Mark Twain observed, “A thing long expected takes the form of the unexpected when at last it comes.” For example, the FDIC’s regulatory expectations for loan review seem quite expansive and encompassing, especially for an industry concerned about its non-interest expense ratio and the cost of its non-revenue-producing staff. Nevertheless, bankers must figure out how to adhere to the FDIC’s guidance on loan review systems, credit risk rating systems, loan review system elements, qualifications of loan review personnel, loan review personnel independence, frequency of reviews, loan review scope, review of findings and follow-up, and work paper distribution and reporting.

So, let’s get a sense of what regulators specifically expect loan review to do, and let’s start with loan review systems.

Scope in loan reviewing

Loan review systems defined

The terms "loan review system" or "credit risk review system" refer to the responsibilities assigned to various areas such as credit underwriting, loan administration, problem loan workout, or other areas. Responsibilities may include assigning initial credit grades, ensuring grade changes are made when needed, or compiling the information necessary to assess the appropriateness of the ALLL. The complexity and scope of a loan review system will vary based on an institution’s size, type of operations, and management practices. Systems may include components that are independent of the lending function or may place some reliance on loan officers.

Although smaller institutions are not expected to maintain separate loan review departments, it is essential that every institution have an effective loan review system. Regardless of its complexity, an effective loan review system is generally designed to address the following objectives:

  • To promptly identify loans with well-defined credit weaknesses so that timely action can be taken to minimize credit loss
  • To provide essential information for determining the relevant trends affecting the collectability
    of the loan portfolio and isolate potential problem areas
  • To evaluate the activities of lending personnel
  • To assess the adequacy of, and adherence to, loan policies and procedures, and to monitor
    compliance with relevant laws and regulations
  • To provide the board of directors and senior management with an objective assessment of the overall portfolio quality; and
  • To provide management with information related to credit quality that can be used for financial
    and regulatory reporting purposes.

Loan review checklist

Check out your loan review system

So does your own loan review system meets these objectives? Here’s a handy checklist grid to diagnose your current state, identify objectives that need to be addressed, and set action plans to implement any missing or underperforming objectives:


Start thinking about what is expected of your loan review system—internal or external—to see if all systems are go. 

Learn more about the impact of CFPB 1071 rule on small business lending 

Meeting expectations

Strategies to simplify loan review for regulatory compliance

As our annual loan review survey pointed out, loan review units have a severe workforce shortage at the junior and senior levels. To make the workforce shortage even more critical, there is no real certification or formal training program for loan reviewers yet. But many banks and credit unions find that booking loans with a loan origination platform offers their current staff greater functionality, mitigating or eliminating those staffing woes.  For smaller institutions especially, loan review software makes tracking productivity among teams, geographies, and other factors easier and more efficient. In addition to providing more efficient credit risk review, a loan review solution can provide other analytics to elevate loan review’s profile or support staffing requests.

When it comes to comprehensive loan review, loan officers should get familiar with FDIC regulatory expectations, examine their processes, and consider what tools and resources can support their review process while meeting regulatory expectations.

Learn more helpful information in this on-demand webinar, "Create and maintain a successful loan review function."

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About the Author

Dev Strischek

A frequent speaker, instructor, advisor and writer on credit risk and commercial banking topics and issues, Dev is principal of Devon Risk Advisory Group and engages in consulting, speaking and training on a wide range of risk, credit, and lending topics. As former SVP and senior credit policy officer at

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About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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