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How Loan Delinquencies Impact Risk

Kevin Malicki keeps financial institutions up-to-date on Governance, Risk, and Compliance (GRC) as Director of Product Management at Harland Clarke.

Transcript

Today we’re going to discuss loan delinquency rates and how they impact risk. But first, we’re going to start with a little physics lesson— and Newton’s Third Law.

Newton’s Third Law says that for every action, there is an equal and opposite reaction. What’s that have to do with financial institution risk and compliance?

According to the American Banking Association, more consumers were delinquent in payments on home equity loans, automobiles and credit cards in the first quarter of 2017. For example, delinquencies in auto loans — direct and indirect — rose by 8 and 9 basis points, respectively. Delinquencies in credit card loans rose 5 basis points.

While these numbers are not cause for alarm, they do point to an “edging up” of delinquencies from what have been very low rates.

So, with Newton’s law in mind, that’s the “action.” The “reaction” on the part of financial institutions is that when delinquencies go up, revenues slow down, and executives look for ways to shave expenses to counter the shrinking revenue.

One place they frequently look to save costs is in non-revenue-generating areas — and often risk management lands at the top of that list.

The problem is, keeping up with new regulations is only getting harder. And with fewer resources on board, it’s that much riskier.

So, how can you react?

Number 1. Acknowledge that risks aren’t reduced by smaller budgets. In fact, the opposite happens, and with less oversight, risks go up.

Number 2. Make everyone a risk manager. Your front-line employees are your first line of defense. When things go wrong at your institution, its reputation gets damaged. Be sure everyone is wearing their risk manager “hat” every day.  And …

Number 3. Use the right tools. Don’t be shortsighted when it comes to keeping up with regulations and compliance. Using resources wisely means employing the most efficient tools to help you mitigate risk.

And that’s your risk management — and physics — lesson for today.

Learn more at harlandclarke.com/GRC

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Harland Clarke Corp. is a leading provider of best-in-class integrated payment solutions and marketing services, serving multiple industries including financial services, retail, healthcare, insurance, and telecommunications.

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