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What will credit training look like in ten years?

What you do today will produce tomorrow’s credit experts

“There’s really not much that indicates we’ve learned anything new over the last several cycles,” says veteran lender and CEO Ed O’Leary. He aims to fix that. “There’s really not much that indicates we’ve learned anything new over the last several cycles,” says veteran lender and CEO Ed O’Leary. He aims to fix that.

There’s considerable talk and a rising level of anecdotal information that many banks are doing less formal credit training.

The alternatives are two-fold:

• First is to rely on the marketplace, to hire previously trained lenders to staff lending positions.

• Second, is to increasingly depersonalize the lending process by centralizing the process itself.

What is happening at many banks is understandable. They are trying to rein in the level of non-interest expense and this complements another trend toward the centralization of the credit decisionmaking process itself together with some “big data” assistance in underwriting.

These trends follow the years of consolidation in our industry where many lenders have worked for several banks of increasing asset size—without ever changing jobs or locations.

Looking at the roots

Most commercial lenders today are the product of a blend of in-house training and good on-the-job assistance from people and systems. The formality of the process is important but increasingly difficult without an established program.

I’ve no solutions to recommend to the manpower or budgetary issues facing bank managers and owners. But there are several steps that banks can take in tending more carefully and thoroughly to some “natural” opportunities to maintain credit competency.


Seasoned lenders in any bank are the most logical ones to share responsibility for bringing younger lenders along.

Many banks have put more structure into mentoring and this is constructive and useful in many ways. Yet management must be sensitive to some very real possible individual shortcomings.

Are these mentors particularly well trained themselves in the basics? Or are they more “seat of the pants” lenders who have been fortunate enough to have been “right” most of the time?

The biggest risk to the learning curve of the juniors is whether they are learning bad habits—and will perpetuate them in the years to come.

This reminds me of the constant warning of an old credit administrator in my bank:

“Just because a loan pays off doesn’t mean that it was a good loan.”

Loan Committees

One of the biggest advantages ascribed to loan committees is the ability to get the “best thinking” on credits. It represents the opportunity to pool knowledge of the local community, information on borrowers, and analytical and structuring skills of the committee members.

One way or another we all understand that experiences with credit committees are not necessarily positive and constructive. Committees can act as rubber stamps for senior people; stifle discussion based on the rank or personality traits of the chairman; and give a forum to a bully.

The fact of the durability of loan committees over the years suggests that many have concluded that the benefits outweigh the negatives and have been successful in detecting and curing some of the shortfalls of this process.

Formal Training—Smaller Banks

Many community banks feel that they can’t afford the overhead burden of a separate credit department and that may be an unavoidable conclusion.

Credit analysis skills are learned, not inherited, so if there is no formal opportunity to learn them in-house, banks must figure out other methods of developing this competency. Are the programs offered by trade associations and other vendors effective?

These banks should pay attention to what peer banks are doing. In time, best practices will emerge and can be replicated.

Loan Policy

Every loan policy is proscriptive. It sets out the bank’s standards of analysis, credit integrity, minimally acceptable documentation, desirable and undesirable loans and other related matters.

Lending managers should formally undertake to regularly determine whether the loan policy is doing the job or not.

How should this be approached and integrated into the bank’s appetite for risk? Are there any key components to this process? How can the policy itself assume a more prominent role in lender training? These are not abstract issues.

What bothers me as I look into my crystal ball is the lack of any sort of standardization in what elements should constitute the necessary training of lenders in the future.

As community banks expand by either organic growth or acquisition, how is an internal “sense” of good credit or bad formed and maintained?

Without careful and thoughtful consideration, any internal consensus will be practically impossible. Such banks’ lending staffs may be left with habits and attitudes of the loudest talkers; the oldest lenders (perhaps one year of experience innumerable times); or with the value systems of the least qualified persons in the organization.

The miserable experience of many financial institutions in the early phases of the current business cycle suggests that lender training is far too important to leave simply to chance.

These are some of the challenges facing our lending managements, particularly at community banks, in the face of broad and powerful industry trends. Unfortunately, these trends also exacerbate the erosion of “relationship” banking due to the inevitable centralizing of decision-making that is in part a consequence of a less formally trained staff.

Unhappily, I see no “fix” to that.

Ed O’Leary

Banking Exchange Contributing Editor Ed O'Leary, a veteran lender and workout expert, spent nearly 50 years in bank commercial credit and related functions, working with both major banks as well as community banking institutions. His last job before retiring was as the CEO of a regional bank headquartered in Alburquerque, N.M. He earned his workout spurs in the dark days of the 1980s and early 1990s in both oil patch and commercial real estate lending. O'Leary began his banking career at The Bank of New York in 1964, and worked at banks in Florida, Texas, Oklahoma, and New Mexico. He served as a faculty member and thesis advisor at ABA's Stonier Graduate School of Banking for more than two decades, and served as long as a faculty member for ABA's undergraduate and graduate commercial lending schools. Today he works as a consultant and expert witness, and serves as instructor for ABA e-learning courses. You can e-mail him at [email protected]. O'Leary's website can be found at

In mid-2016 O'Leary's "Talking Credit" blog received a bronze excellence award for the Northeastern Region from the American Society of Business Publication Editors.

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