RM- Project - Risk Capital at a Bank

Running Head: BANK LENDING PRACTICES AT THE BANK OF AMERICA

BANK LENDING PRACTICES AT THE BANK OF AMERICA 4

Bank Lending Practices at the Bank of America

Rasmussen College

March 19, 2017

Individual and Commercial Lending Practices

As one of the largest financial organizations, the Bank of America (BOA) serves both personal and commercial businesses and corporations. Businesses owners are offered loans to enable them to purchase inventory and materials. Furthermore, loans are provided by the BOA to refinance debt or finance account receivables. In the individual aspects, loans on mortgages are given to enable people to fund their new homes. Car loans are also get provided to the client as the banks depending on the eligibility of an individual (Hanken, Young, Smilowitz, Chiampas & Waskowski, 2016).

Under the Small Business Administration Federal Agency, the Bank of America offers loans to small established businesses and to firms that are getting started. A minimum of $350,000 gets provided to businesses to buy equipment or purchasing real estate. The loan can get paid for a seven-year term. Competitive variable rates based on prime rates gets offered. Considerations get made in a type of relationship an individual or business has with the bank. An online banking system is also provided to give clients more access to their finances.

Risk Measurement Techniques

Risk analysis and management are indispensable at the Bank of America in particular with the high rates or credits offered to individuals and commercial corporations. The Bank of America utilizes different strategies for competency credit risk policies to monitor and manage credit risks in the company. A team of credit risk analyst exists that extensive conduct analysis of the bank’s exposure to credit risks. Studies are carried out on financial statements of industrial corporations to determine their credibility for credit. For individual loans, credit-card loss forecasting is done to assess and calculate the risks of personal lending. On the other hand, an SAS Enterprise Risk Management system and an IBM grid are used in to evaluate the risks exposed to the bank. The high technologies can ensure that useful calculations on statistics are conducted to determine the credit risks in the bank. Consequently, almost accurate forecasts can be made therefore evading considerable risks on the part of the company. Short term deposits get required from all borrowers to according to the time frame indicated in the issuance of credit. The Bank of America has a Corporate Investments Group that models and calculates the risks and probability of default to securities offered. Furthermore, a compliance team also exists and provides guidance and advice to the Bank on issues related to financial lending.

Benefits of Transfer of Credit Risk

There are various benefits associated with the transfer of credit risks. One of the most apparent benefits of transfer of credit risk is that a bank can shift all the risks related to credit. In this manner, opportunities are created for a bank to pursue other viable opportunities. Still, on the same point, credit risk transfers enable a bank to liberate capital for further loan intermediation. Improved liquidity in the market is another benefit of transfer of credit risk (Chang & Chen, 2016).

Recommendations for the Bank’s Lending Practices

The Bank of America can prefer short-term investments to evade any form of potential risks. Secondly, the company should utilize more of recent technologies in the assessment of credit risks. In this manner, the company gains the ability to gather, analyze, compare, and interpret information before providing credit or lending services to individuals and commercials.

Reference

Chang, C. P., & Chen, S. (2016). Government capital injection, credit risk transfer, and bank performance during a financial crisis. Economic Modelling, 53, 477-486.

Hanken, T., Young, S., Smilowitz, K., Chiampas, G., & Waskowski, D. (2016). Developing a Data Visualization System for the Bank of America Chicago Marathon (Chicago, Illinois USA). Prehospital and Disaster Medicine, 1-6.