Chapter 2
How Banks Evaluate Your Loan Application*
Abstract
What is the overall credit philosophy of financial institutions? Lenders require not only a sense of caution as they move on from the debt crisis but also the courage and wisdom to take reasonable risks. Financial institutions succeed as long as the risks they assume are prudent and remain within clearly defined parameters of portfolio objectives. This means enacting policies and procedures; ensuring that exposures are properly identified, monitored, and controlled; and making sure that loan pricing, terms, and other safeguards against non-performance or default are commensurate with levels of risk that banks commit to. In short, banks are in the business of making loans, which ...
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