Jeff Judy

Jeff's Thoughts - October 27 , 2010

The Right Way to Train Business Lending Supervisors

Many financial services institutions find themselves using staff with little knowledge of commercial credit to supervise employees who actually perform business lending functions. And this makes perfect sense, as they try to serve their marketplace while using their labor force as efficiently as possible.

For instance, it is common to handle the business lending functions in a branch office with one or two bankers who have been trained in commercial credit, reporting to the branch manager. Or, in other instances, someone with a lot of experience on the consumer side, in retail lending, may take on additional responsibility for managing a couple of commercial lenders. Some institutions are getting into business lending for the first time, at some locations, and it makes sense to staff conservatively, with just one or two experienced business lenders reporting to the existing management structure.

I meet many such supervisors when they attend the commercial credit curricula I help teach at numerous state associations, banking schools, and individual institutions. Indeed, that seems to be the most common way of preparing them to supervise business lenders, by sending them to the same training those commercial loan officers get.

You could say that 99% of the institutions who use supervisors who don't have business lending backgrounds to oversee commercial bankers take one of two paths:

  1. Give the supervisor exactly the same training as a commercial lender, or
  2. Give the supervisor "commercial lending lite," running them through selected parts of the usual commercial credit training.

I believe these approaches are both inefficient and ineffective. Inefficient, because the supervisors spend a lot of time learning details of commercial lending that they will rarely, if ever, draw upon again. Ineffective, because these approaches do nothing to develop specific skills and knowledge that supervisors need, that are different from what commercial loan officers need.

In short, I think most supervisors get training that teaches them too much about someone else's job, and develops too few useful skills unique to the "supervisor of business lenders" job. The supervisor's skills and priorities should complement those of the business lenders, not duplicate them. Together, as a team, the business lenders and their supervisor should form a more effective unit -- better at serving their customers and better at protecting the bank's interests -- than you can make out of several people with identical training.

While I don't have the space here to outline a complete "Business Lending Supervisor" curriculum, I'd suggest the following for any supervisors who will oversee people who have more experience in commercial lending than they do:

That last topic, protecting the institution, is, after all, the reason that business lenders are supervised instead of left entirely on their own. As just one example, we all know that it is easy for a business lender to get too close to a customer, that sometimes they do not act on the early signs of trouble because they want to believe that the borrower is going to turn around. A business lending supervisor can help maintain the objectivity and accountability, in that situation, that the institution needs,without knowing all the fine details of credit analysis.

You need business lending supervisors who understand enough about what commercial loan officers do to monitor, question, and support their work. But you need supervisors who look at business lending a little differently than do the credit staff on the front lines, who take the organization's perspective on commercial credit business, and who hold their lending staff accountable for doing things right. After all, we have seen, in the last couple of years, how many financial services providers got a little too casual about their own policies, with disastrous consequences.

Extending your commercial credit reach by adding business lending to a branch, under existing management personnel, makes great sense. It makes even more sense to give those managers the training they deserve to do their own, unique, jobs in ways that will benefit the overall institution.