Leveraged Lending

Strategic Risk

Strategic risk is the current and prospective impact on earnings or capital arising from adverse business decisions, improper implementation of a decision, or lack of responsiveness to industry changes. This risk is a function of the compatibility of an organization’s strategic goals, the business strategies developed to achieve those goals, the resources deployed against these goals, and the quality of implementation. The resources needed to carry out business strategies are both tangible and intangible. This includes communication channels, operating systems, delivery networks, and managerial capacities. The organization’s internal characteristics must be evaluated against the impact of economic, technological, competitive, regulatory and environmental changes.

A bank’s decision to be involved in leveraged lending requires advanced account and portfolio management practices. Failure of the board of directors and bank management to provide a commensurate level of oversight and supervision may expose the bank to significant exposure from the interrelationship of the risk factors discussed above and from the conflicts of interest arising from the multiple roles in which the institution or its affiliates may be involved.

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