Bank Lending Practices - Finance Essay Sample

Wells Fargo & Company has set a remarkable example by establishing a set of fair and responsible lending practices that apply to both commercial and individual customers. The bank is determined to follow business practices for the purpose of service its customers better and for a long time. In the lending practice, the bank does not tolerate misleading, abusive or fraudulent lending. Wells Fargo & Company hold a high expectation from its customers who are either individual or commercial. They expect reliable, respect and conversant support and service and more importantly they expect the organization to be fair and responsible in their lending practices.

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Individual lending practice is offered by Wells Fargo & Company to single party individuals with the aim of satisfying their financial needs and assist them to thrive financially. Commercial lending practice is being offered by the bank to existing business or companies for the purpose of increasing their financial stability. To issue both loans and credit Wells Fargo & Company has established core principles that ensure a transparent, simple and a customer-focused service delivery (Wells Fargo & Company, 2016). The first principle the bank takes into consideration is the ability of the customer to repay the loan by the customers financial circumstances and its terms and conditions. The other principle is that, the loan transaction must be beneficial to the customer, for instance, the customer can refinance from a variable to fixed interest rate products. The last principle it to support the customers objective of creating cognizant choices. This is through educating the customers on the benefits certain loans in regards to their financial ability (Beckhart, 1980). Conclusively, these principles are there to drive a common sense, good business practice and support for the customer each day. For commercial lending, Wells Fargo & Company offers other support services which include structuring of loan transactions, inter-creditor arrangement, and perfection of security interest, regulatory compliance, and compliance with security and loan requirements.

Wells Fargo & Company defines credit risk as the risk related with a counterparty or borrower who fails to meet the obligations as per the credit agreed terms. The existence of credit risks is either in exposures or assets for instance derivatives, loans, and debt security holdings. The loan section is the one that holds the largest source of credit risk (Wells Fargo & Company, 2016). Wells Fargo & Company governs its credit risk management centrally but provides for accountability and decentralized management by other existing lines of business. Individual risk is part of the banks credit risk, but this one occurs when a single party is unable to meet the contractual obligation that forces the bank to withdraw, replace or ruminate the transaction creating a loss to the organization. This can occur as a result of counter derivatives, margin loans, repo-style transactions or exchange and unsettled trade. Commercial risks also occur as a result of businesses not able to meet the contractual obligation of repaying their credit (Wells Fargo & Company, 2016). The general credit process incorporates complete credit strategies, broad credit preparing programs, judgmental credit guaranteeing, visit and nitty gritty risk appraisal, and a constant free loan survey and review process. What's more, administrative inspectors survey and perform a definite trial of our credit endorsing and loan organization processes.

The main purpose of introducing credit risk transfer in banks is for the purpose of spreading risks using a syndicated loan in association with different banks. Theis (2014) shows that the procedure permits securitizing the loan along these lines expelling the advantage from the monetary record and relying upon how the exchange structures and sold, transferring the credit risk related to the loan which is covering the risk of default misfortune with credit default swap and moving the risk of resources for a claim to fame fund organization (Theis, 2014). On a fundamental level, the capacity to transfer credit risks is a favorable position to the financial market in general, as it means risks can be held nearly uniformly over the framework. Practically speaking, this may happen, and risk can wind up being amassed specifically segments or among a specific gathering of speculators. Albeit such outcomes are not to take away from the natural positive effect of credit risk transfer. As indicated by Theis (2014), credit risk transfer empowers banks to oversee bank capital more efficient and furthermore to diversify their risk introduction. This means banks can have the capacity to lessen their general credit introduction. The risk is not wiped out rather it is being transferred to different banks or even other market divisions. Risk transfer through securitization produces other potential advantages as new venture item for bank speculators that is a fluid money related instrument which might not have been the situation for the securitized resources (Theis, 2014). Risk transfer through credit default swap empowers the bank to keep up the loan and along these lines the customer relationship while profiting from a capital cost lessening. That the credit default swap can be executed with an indistinguishable development to the loan is one of the prime focal points of the credit default swap instrument.

To have better lending practices with our banks, there is a need for banks to revise their policies and regulation by tightening their lending structures. Securing businesses when issues and question with the banks emerge is critical to give appropriate change and disincentives poor treatment of business. It is additionally imperative that the more extensive potential irreconcilable situations between the banks, IBRs, department heads, indebtedness practitioners and beneficiaries are given careful thought (Rouse, Bell & Graham, 2011). Where these contentions happen, it does as such to the detriment of the business. If agreement did not occur between these parties and their connections were more straightforward, then better reasonableness between the parties could be guaranteed. This requires promote examination and thought by the Government to guarantee that the law is being maintained and these contentions don't affect the businesses capacity to work (Rouse, Bell & Graham, 2011). The country requires an arrangement to rebalance the connection amongst business and bank, giving more assurance to businesses and giving them the genuine choice of moving banks, securing the back their business merits and requires. It is indispensable for the long haul wellbeing of the economy that opposition is infused straightforwardly into the heart of banking, with a fresh start to begin once more (Rouse, Bell & Graham, 2011). Not exclusively will this enhance treatment of businesses, it will likewise positively affect the impression of businesses towards the bank urging them to develop and put resources into their businesses yet again. The Government has a novel chance to make a move to actuate this change. The Government has a golden chance to make this, and at last something which will secure the monetary development of the country for a long time to come.

References

Beckhart, B. H. (1980). Banking systems. New York: Columbia University Press.

Imbierowicz, B., & Rauch, C. (2014). The relationship between liquidity risk and credit risk in

banks. Journal of Banking & Finance, 40, 242-256.

Rouse, C. N., Bell, C., & Graham, A. (2011). Bankers' lending techniques. Cranbrook: Global Professional.

Theis, C. (2014). The risks and benefits of credit default swaps and the impact of a new

regulatory environment.

Wells Fargo & Company. (2016). Basel III Pillar 3 Regulatory Capital Disclosures. Wells Fargo.