The Four Unbreakable Rules of Credit Approval in US Banking

While Chinese banks have their “Four Bottom Lines” for credit approvers, American lenders face parallel challenges—with higher stakes. The FDIC’s 2024 enforcement actions reveal a 37% spike in loan underwriting violations, proving that credit committees aren’t just gatekeepers; they’re the last line of defense against financial catastrophe. Here’s how top US risk officers navigate their own version of these principles.

I. The US Equivalent: Four Commandments for Credit Committees

1. Regulatory Firewalls (The Policy Redline)

• US Parallel: The Dodd-Frank Act’s “Qualified Mortgage” rules
• Case in Point:
  • Do: Approve a $2M equipment loan at 6.5% APR (safe harbor QM)
  • Don’t: Greenlight a 12% “liar loan” with balloon payments (triggering CFPB penalties)
• Toolkit:
  • OCC’s CAT system flags high-risk industries (e.g., crypto mining)
  • SBA’s Lender Match verifies policy alignment

2. Process Worship (Compliance as Religion)

• American Reality:
  • 72% of credit memos now auto-checked by AI (Promontory Interfinancial Network)
  • “Three Lines of Defense” model:
    1. Frontline underwriters
    2. Independent risk review
    3. Internal audit
• Career Saver: Always attach the “Second Opinion Email”—e.g., “Per Jim’s appraisal concern, we added 15% reserve”

3. Truth or Consequences (The Data Ultimatum)

• SEC/FDIC Hot Buttons:
  • Fake Data: $28M fine to PacWest for doctored debt-service coverage ratios
  • Omissions: Zions Bank penalized for ignoring PPP loan stacking
• Verification Hacks:
  • For Businesses: Cross-check IRS Form 4506-C with bank statements
  • For Consumers: Use Plaid to authenticate 90-day cash flow

4. The Independence Doctrine

• Legal Backstop:
  • Sarbanes-Oxley Act protections for dissenters
  • OCC’s “Heightened Standards” requiring committee diversity
• Power Move: When pressured, cite the “M&T Bank Precedent”—where a lone “No” vote saved $47M during the 2023 office loan crash

II. The American Twist: Risk vs. Reward

1. The Profitability Paradox

• Data Point:
  • “Strict” banks show 2.1% ROAA vs. 3.4% for “flexible” peers
  • But… their 5-year survival rate is 89% vs. 62%

2. The Tech Tightrope

• AI Dangers:
  • Upstart’s algorithm rejected 38% of credit-worthy minority applicants (DOJ 2024)
  • Antidote: Blend AI scores with human “gut checks”

III. Survival Toolkit for 2025