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From American Banker (paid subscription required) today comes news of a change in the handling of credit risk at regional banks: Synovus Financial Corp., a holding company that operates 37 regional banks in Georgia, Alabama, and other Southeast states, is decentralizing the oversight of its credit function. The $32.9-billon asset banking company is dispatching regional credit officers to improve local decision-making on loans and to address problems in distressed markets—like Florida, where residential construction and development loan portfolios are sinking faster than the swamps.
Why is this notable, and, if it catches fire, possibly beneficial to corporations seeking capital? For 20 years, banks have done the opposite—concentrated all credit decisions at corporate headquarters. That allowed for greater cost efficiencies. It required fewer staff and leveraged the increasing sophistication of credit decisioning and loan processing software. But the decision to lend a homeowner or a company money became disengaged from the individual borrower.
In large-corporate lending, the homogenization of credit decisions has been the rule too. Syndicated commercial loans are funded by large numbers of participants (40, maybe even more), the vast majority of whom focus on the return, not on building a relationship with the corporate borrower. And the development of the secondary market for loans, while boosting liquidity, has led to the standardization of loan agreements. "Market participants are not really interested in a hearing a company's story," says Bob Graves, co-chair of Jones Day's banking and finance practice. "They want to see everything within nice, neat little boxes."
Synovus's decentralization strategy affirms that the drive to concentrate and automate credit operations, turning the borrower into an abstraction, went too far. If banks are going to improve their understanding of credit risks, they're going to have to come down from their ivory towers.
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