The correct answer is True. A bank’s loan policy serves as the board’s guidance to the bank’s lending function and sets boundaries on the bank’s risk taking.

 

The correct answer is False. The loan committee may help the board of directors develop and draft the bank’s loan policy, but the board is responsible for approving the policy and making certain that it adequately addresses the full range of the bank’s lending activities.

 

The correct answer is True. A bank’s lending affects more than credit risk. It also presents the bank with liquidity and market risk. As a result, loan policy provisions should take these additional risks into account so that the loan policy works in conjunction with other policies to control the multiple risks a bank faces.

 

The correct answer is False. No two banks face the same circumstance nor do their boards have identical risk tolerances. As a consequence, a bank’s loan policy should be tailored to its individual needs.

 

The correct answer is False. Loans that are exceptions to policy do not necessarily present above normal credit risk. Instead, they may have unique features not considered by the board when the bank’s loan policy was adopted and require extra care. To turn down a loan request simply because it falls outside policy guidance may be denying the bank a profitable loan.