the private banker in charge, as well as the rest of the participants in-
cluding the servicing department manager. Based on the discussion, a
vote is taken regarding the risk rating assigned to each credit facility
and the need to keep it as-is, reduce it, or increase it.
2.The bank’s CEO, chief credit officer, and deputy chief credit officer
scan important financial, economic, monetary, and political news, anal-
ysis, research, and reports published byThe Wall Street Journal,The
Financial Times(London),The Economist(London), the Heritage
Foundation, the University of Southern California (USC), the University
of California at Los Angeles (UCLA), and various agencies of the fed-
eral, state (California), and local (southern California) governments.
An integrated report on the state of the economy is published and dis-
tributed to the Strategic Credit Assessment Group (SCAG) to assist its
members in formulating their opinions on risk factors affecting the al-
lowance for loan and lease losses (ALLL) reserves.
3.Members of SCAG independently identify a matrix of the risk factors
affecting ALLL reserves for the operating quarter to come. Based on
this review, a probability-based qualitative/quantitative analysis is con-
ducted by identifying in the matrix of variables the different economic,
demographic, political, monetary, policy, labor and international fac-
tors. Each member of SCAG assigns factors to each of the variables, to
include an estimate of how much each parameter will impact the differ-
ent category the bank is active in financing. The result of the analysis
produces a set of aggregated percent allocations for each credit facility
that must be reserved in ALLL. This analysis is done independently by
each member of SCAG.
4.The weighted average of the SCAG committee (usually six to seven
members, with weights assigned based the member’s experience and re-
sponsibility) is then applied, along with the historical credit facility loss
factors, to calculate the required ALLL reserve.Can the RF Bank Offer Unsecured Loans? What About Lines of Credit? Un-
secured loans are loans granted by riba-based banks to individuals and insti-
tutions based only on the historic and projected cash flow. The riba-based
bank does not take any asset as collateral for the loan. Because of the RF
banking rules discussed in the book, unsecured loans are prohibited in an
RF banking regime. As was detailed earlier, RF banking uses asset/service-
based loans only, and the asset/service must be marked to the market.
If a customer is applying for an RF line of credit, the situation must be
handled on a case-by-case basis. For example, if a medical doctor wants to
finance the construction of his new home, an RF bank cannot simply offer a
line of credit in the traditional riba-based conventional banking way. First
Operating an RF Bank in the United States 345