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How Reliable Is Your Memory?

Nov 29, 2018
Financial Institutions

Have you ever played a memory matching game with a three- or four-year-old? Those are the games where you have a deck of cards with pairs of matching pictures. Back in the day, they might have been pictures of fruits and vegetables, but now they come in all shapes and sizes, from Disney’s “Frozen” to Nickelodeon’s “Paw Patrol,” “Winnie The Pooh” and “Despicable Me.” You lay all the cards face down and take turns picking two cards to see if you can find a match. You show every card you turn over, so eventually players can figure out where to find the match for the first card they turn over. That is, of course, if you are paying close attention! Invariably, when I play this game, the kiddo will come out on top. Why? Maybe as adults we get distracted more easily or our memory is not as keen as it once was, or I suppose we are sometimes simply rooting for the kiddo (although I can assure you, they can hold their own!) The whole secret to the game is not only to pay close attention as every card is turned, but to also retain everything you have seen. In the beginning, nothing seems to match. As more and more cards are turned over, you must rely on your careful observations to find the matches, or you might get lost in the jumble of data overload. Was that Elsa or Anna? Rubble or Rocky? Next thing you know, you’ve been beaten by the pre-kindergarten bright squad! 

It occurred to me that a similar concept applies to commercial lending, although it happens in much slower motion. Every new commercial loan relationship is carefully underwritten, discussed and approved so that all the appropriate parties are well informed and aware as the relationship is added to the portfolio. Everyone sees the “cards” as they are turned over. Here and there, you might notice some similar transactions, but it is difficult to spot a developing trend or recall the number or amount of loans of one type or another over time. The same is true with making exceptions. There will always be exceptions to loan policy and procedures that are well supported and mitigated. When they occur, everyone vigilantly considers the individual circumstances before approving the exception. Over time, however, it is harder to maintain a sense of how many exceptions have been approved and which policies have had the greatest number of exceptions. As easily as you can be bested by a child in a memory game, you can also overlook a developing concentration or a higher-than-expected percentage of policy exceptions within your loan portfolio. While you may not mind being beaten in a game by a preschooler, it’s a little harder to swallow criticism from your primary regulator on your portfolio management effectiveness. 

Wipfli can’t help you to win a matching game with your favorite little ones, but we can help you evaluate your loan portfolio management and provide guidance that will help you strengthen the management of your loan portfolio so you don’t miss any developing “matching” weaknesses or trends that could wreak havoc on the strength of your loan portfolio. Contact your relationship manager to gain access to our team of seasoned professionals. We have walked in your shoes and are ready to share our experience with your team. 


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