Most bankers and examiners will agree that the single greatest risk in banking is the risk of loan losses. This is because loans typically comprise a majority of the assets in most banks. It's not hard to imagine an entire year's worth of earnings being completely eliminated because of one or two large loans being charged off. Because the exposure is so vast, examiners spend a significant amount of time assessing asset quality, primarily loan quality, at almost every examination. Of course, given the size of the exposure, we think the directorate should spend a significant amount of time assessing this risk as well, in formulating loan policies, attending loan committee meetings, reading credit reviews, and reviewing various management reports on the condition of the loan portfolio. This lesson will explain how examiners assess loan quality and how directors can keep a more watchful eye on their bank's loan portfolio. We will review the examiner's comments about asset quality for our sample bank and let you recommend some corrective measures and assign a rating to the component. Go to the "Next" button below to begin the instructional content for asset quality.

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