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Suggestions on How to Write a Procedure

In recent weeks we have expressed the importance of policies and procedures and given some advice on how to write a policy.

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Temenos – Company

In recent weeks we have expressed the importance of policies and procedures and given some advice on how to write a policy. This week we are giving our suggestions on how to write a procedure. We suggest that a procedure be written in a step/action format. A procedure should be comprehensive of all possible circumstances and leave no room for doubt as to the proper action to take. Its purpose is to assure that similar situations are always handled in the same manner and in accordance with the financial institution’s policy. The following is a suggested procedure for handling a loan application from an employee or director of the bank:

Step 1 –

Is the applicant a director or executive officer?

  • If yes, go to step 2.
  • If no, send the loan to underwriting and this procedure is complete.

Step 2 –

Is the person an executive officer?

  • If yes, go to step 3.
  • If no, go to step 9

Step 3 –

Is the loan for the purpose of educating the executive officer’s children?

  • If yes, go to step 9
  • If no, go to step 4.

Step 4 –

Is the purpose of the loan to finance the purchase, construction, maintenance or improvement of a residence of the executive officer and will it be secured by a first mortgage on the residence?

  • If yes, go to step 5.
  • If no, go to step 6.

Step 5 –

Does the executive officer have an existing residence loan with the bank?

  • If yes, go to step 8.
  • If no, go to step 9.

Step 6 –

Is the purpose of the loan to refinance an existing loan secured by a first lien on a residence of the executive officer?

  • If yes, does the executive officer have an existing residence loan with the bank? If no go to step 8.
  • If yes, does the new loan exceed the balance of the loan being refinanced?
    • If yes, go to step 8.
    • If no, go to step 9.
  • If no, go to step 7.

Step 7 –

Is the loan secured by a deposit account with the bank or by securities issued by or guaranteed by the United States Government or an agency thereof?

  • If yes, go to step 9.
  • If no, go to step 8.

Step 8 –

Does the loan amount (or in the case of a refinance of a residence, the new money) when aggregated with all other extensions of credit from the bank to the executive officer exceed $100,000?

  • If yes, deny the loan and this procedure is complete.
  • If no, go to step 9.

Step 9 –

Have the loan underwritten in accordance with procedures not less stringent than those for similar transactions with non-covered persons.

  • If the loan is approved, go to step 10.
  • If the loan is denied, deny the loan and this procedure is complete.

Step 10 –

Are the loan terms (including interest rate and collateral) not more favorable than similar transactions with non-covered persons or in accordance with a program widely available to employees of the bank?

  • If yes, go to step 11.
  • If no, deny the loan and this procedure is complete.

Step 11 –

Does the loan when aggregated with all other extensions of credit from the bank to the person exceed $500,000?

  • If yes, send the loan to the board of directors for its approval or denial and this procedure is complete.
  • If no, approve the loan and this procedure is complete.

In addition to assuring uniformity in the handling of transactions, procedures are great teaching tools. For example, rather than teaching a loan officer all of the ins and outs of Regulation O loans to insiders, you only need educate the officer on the requirements of the procedure.

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