The FDIC has proposed a new rule that will change the way large lenders define and calculate risk for their FDIC Deposit Insurance Assessment. The revised definitions in the proposed rule rely on "probability of default" and eliminate all references to the traditional three-digit credit score used to calculate subprime exposure — changing the way large banks calculate their FDIC assessments. This new ruling will allow lenders to uniformly assess risk in their portfolios–regardless of the scoring models they use. View a recent webinar to hear from a panel of experts on the "The New Subprime Definition: Who is subprime now?" Source: FDIC Proposed Ruling Announcement

Contributed by: David Daukus As the economy is starting to finally turn around albeit with hiccups and demand for new credit picking up, creditors are loosening their lending criteria to grab market share. However, it is important for lenders to keep lessons from the past to avoid the same mistakes. With multiple government agencies such as the CFPB, OCC, FDIC and NCUA and new regulations, banking compliance is more complex than ever. That said, there are certain foundational elements, which hold true. One such important aspect is keeping a consistent and well-balanced risk management approach.  Another key aspect is around concentration risk. This is where a significant amount of risk is focused in certain portfolios across specific regions, risk tiers, etc. (Think back to 2007/2008 where some financial institutions focused on making stated-income mortgages and other riskier loans.) In 2011, the Federal Reserve Board of Governors released a study outlining the key reasons for bank failures. This review focused mainly on 20 bank failures from June 29, 2009 thru June 30, 2011 where more in-depth reporting and analysis had been completed after each failure. According to the Federal Reserve Board of Governors, here are the four key reasons for the failed banks: (1) Management pursuing robust growth objectives and making strategic choices that proved to be poor decisions; (2) Rapid loan portfolio growth exceeding the bank’s risk management capabilities and/or internal controls; (3) Asset concentrations tied to commercial real estate or construction, land, and land development (CLD) loans; (4) Management failing to have sufficient capital to cushion mounting losses. So, what should be done? Besides adherence to new regulations, which have been sprouting up to save us all from another financial catastrophe, diversification of risk maybe the name of the game. The right mix of the following is needed for a successful risk management approach including the following steps: Analyze portfolios and needs Predict high risk accounts Create comprehensive credit policies Decision for risk and retention Refresh scores/attributes and policies So, now is a great time to renew your focus. Source: Federal Reserve Board of Governors: Summary Analysis of Failed Bank Reviews  (9/2011)

a.wpbutton:hover {text-decoration: none !important;} Please select from the below list of recent Experian white papers to gain more insight into topics relevant to your business needs and goals. Converting Information to Intelligence – Current Trends in Mitigating Small-Business Risk Through Analytics Download Now As former Chrysler CEO Lee Iacocca put it, “Even a correct decision is wrong when taken too late.” Portfolio managers who oversee small-business risks know this well. They realize it when they make a decision about approving or rejecting a loan request and recognize later the correct decision would have been clearer if they could have weighed additional data and used improved analytics. This white paper presents some of these latest trends affecting the small-business lending landscape. Specifically, it illuminates how companies are using the new robust data sources and analytic tools – from consortium data to rapid model customization – to maximize their interactions with small-business clients with greater accuracy. Creating Value In Challenging Times: An Innovative Approach To Basel III Compliance Download Now In this paper, we will provide an introduction to Basel III regulation and discuss some of its impact on banks and the banking system. We also will present a real business case showing how organizations turn these regulatory challenges into business opportunities by optimizing their credit strategies. Turning the Tide – Managing Troubled Portfolios Download Now The economy may be recovering and the credit picture improving, but lending institutions still find themselves coping with some troubled portfolios. Plus, they always need to be prepared to identify high-risk accounts. What they can discover is that turning around a challenged loan portfolio requires taking just a few basic steps. This white paper explores how in Arizona Federal Credit Union reversed its misfortunes to emerge from the economic crisis prosperous and with $30 million in profits, illuminating what lenders can do to manage troubled portfolios and reverse poor performance. Get To Know Your Customers: Account Linking and Advanced Customer Management For Utility Providers Download Now In this paper, we will explore the practice of customer management and key capabilities to improve effectiveness in a complex business environment. It will specifically look at opportunities within the utilities marketplace for account linking and deploying customer-level decisions to the business to help drive portfolio performance retain and grow profitability and strengthen customer relationships.   State of the U.S. Credit Markets – At Last, Signs of Real Recovery Download Now The economy’s recovery from the Great Recession may have started slowly, but it is accelerating – and it’s genuine. Economic indicators tell the story of improving business prospects. As the recovery begins to take shape, many consumers are now turning the corner with it and will present as viable candidates to grow your portfolio profitably. It’s difficult to find any solace in a recession, yet it can serve as an opportunity. 2012 will be the year for lenders to return to pre-recession strategies if they are to grow significantly. This economic rebound is real, and savvy lenders – just like those marathon runners and Tour de France bicyclists – recognize that it’s in the uphill stage of the race that the lead changes.   Home Equity Indicators with New Credit Data Methods for Improved Mortgage Risk Analytics This whitepaper describes new improvements in local housing market indicators and analytics derived from local-area credit and local real estate information. In the run up to the U.S. housing downturn and financial crisis, perhaps the greatest single risk management shortfall was poorly predicted home prices and borrower home equity. Understanding Automotive Loan Charge-off Patterns Can Help Mitigate Lender Risk Loan delinquency rates are one of the most important statistics to track in the automotive finance industry. If consumers are not repaying loans on time, it puts billions of dollars at risk. When high dollar volumes are at risk, it is a negative for everyone in the lending world, including consumers, automotive retailers and lenders themselves. While conditions have improved considerably the past few years, lenders still need to remain vigilant about where delinquencies are most likely to occur. It’s an unavoidable fact that some loans will have to be charged off. Understanding where and how these charge offs occur provides important learning for the industry. Experian Automotive has found several clear patterns that can help lenders better understand the root cause of loan delinquencies. Strategic Customer Management for Business Banking Portfolios Download Now This white paper explores business banking customer management and the benefits that can be realized from introducing a strategic approach. It will look at the features of a leading-edge approach to business banking customer management and provide practical insights on key areas.   Universe Expansion – Growth Strategies in the Evolving Consumer Market Download Now As the economy gains strength, lenders are engaging in an increasingly fierce competition to entice the best candidates to their portfolios and to grow their lending business. In waging this battle, however, many lenders are concentrating on the super-prime and prime consumer segments. Prospecting strategies currently in use often do not identify the right subpopulations within the near-prime segment. Specifically, there are prospects within the near-prime segment that exhibit low bad rates compared with the broader near-prime consumer base. It is imperative that lenders redefine their targeting/underwriting strategies to prospect and acquire in the near prime space. A variety of prospecting strategies are now available that compliment and expand on a lender’s current growth initiatives – now is the time to ensure that optimal strategies are in place and that opportunities within near-prime are not overlooked. Interested in more thought leadership? Visit our Business Resources page on  Experian.com